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Market Analysis 12.4.25: Steadily Improved

Good Thursday morning from your Hometown Lender,

Today’s market analysis: rates may slip a few basis points from yesterday, but it sure won’t be much. Bonds started off the day in worse shape than yesterday but have steadily improved through the morning to be just a bit off on the day.

Reprice risk on the day is low, we could see bonds lose a bit of ground but there is no need to worry about any big sell off. The only relevant economic data this morning was jobless claims, which should have sent bonds running for the hills in a sell off since it was the lowest number of new unemployment claims in three years. However, it was a holiday week, and markets know the data can be extra spicy, so traders basically ignored it.

So, the outlook for the day is that we could see bonds improve a few basis points or lose a bit more ground, but either way we aren’t likely to have to worry about any rate moves. As far as tomorrow goes, we get the PCE inflation data for the first time in a while. However, it’s September’s data, so markets may shrug it off because it’s as moldy as a pumpkin in November.

Market analysis from a bit higher level:

Snapshot (as of ~11:30 a.m. ET)

  • 10-yr Treasury: ~4.10% intraday (holding a 4.00–4.20% range). Curve mildly positive. MarketWatch+1
  • 30-yr mortgage avg (Freddie PMMS, weekly): 6.19% (down from 6.23% last week). Public trackers characterize “mid-6s.” Freddie Mac+1
  • Today’s key print: Initial jobless claims 191k (lowest since 2022; holiday noise likely). Bonds took it in stride. Reuters
  • Next big tell (pre-FOMC): PCE inflation (catch-up for September) due Fri, Dec 5 @ 10 a.m. ET. Because October CPI/jobs were canceled in the shutdown, this PCE update carries extra weight. Bureau of Economic Analysis+1

Market analysis: what rates did & why

  • USTs: The 10-yr is hovering near 4.10% after claims; markets are reluctant to leave the 4-handle ahead of Friday’s PCE and next week’s Fed. MarketWatch
  • Mortgages: Freddie’s weekly average fell to 6.19%; that’s directionally supportive for rate sheets, but the spread to Treasuries remains sticky with the Fed no longer shrinking Treasuries but still letting MBS run off (reinvesting MBS paydowns into T-bills). Translation: relief continues, but it’s a “slow thaw.” Freddie Mac+1

Market analysis: political & policy currents (rate-relevant)

  • Government funding: Congress passed a clean extension; agencies are catching up on data, but some October releases (CPI, Employment Situation) were canceled and November jobs is now Dec 16—after the Fed meets. Less visibility → greater emphasis on proxies. House Appropriations GOP+1
  • Energy: OPEC+ kept output policy unchanged for early 2026; a Reuters survey shows November OPEC output slipped anyway. Net effect: oil-price pressure looks contained → a small disinflation tailwind. Reuters+1
  • Global spillovers: Japan’s 10-yr JGB touched ~1.92% (highest since 2007) on BoJ-hike speculation—global term premia can leak into U.S. yields, but today’s impact is modest. Financial Times
  • Fed balance sheet: As of Dec 1, the Fed ended Treasury runoff and will roll maturities; MBS runoff continues with reinvestment into bills. Liquidity help ≠ instant mortgage-spread compression. Reuters

Market analysis & numbers: fresh data flow (and how each could sway rates)

  • Jobless claims (today): 191k. If sustained (and not just holiday noise), it pushes against aggressive easing; for now, markets are discounting the print’s signal quality. Reuters
  • ISM Services (yesterday): 52.6; employment sub-50 and prices elevated = “slow-growth + sticky services inflation.” A hotter-than-expected services-prices track would cap any rally in MBS. Institute for Supply Management+1
  • ADP (yesterday): -32k private jobs; adds to the “soft hiring” narrative feeding cut odds. ADP isn’t gospel, but with BLS delays it matters more than usual. ADP Media Center
  • PCE (Fri): If core PCE lands tame, 10s can test the low end of the range and lenders may price a touch better; a surprise firm print would do the opposite. Bureau of Economic Analysis

Fed Watch (Dec 9–10)

  • Cut odds: Fed funds futures imply ~85–90% chance of a 25 bp cut next week. Markets lean “cut + cautious guidance” given soft activity data and the data gaps. CBS News
  • Mechanics for mortgages: A Fed cut moves short-rate products (HELOCs/ARMs) first. Fixed mortgages still key off 10-yr UST + MBS spreads; the balance-sheet tweak (no QT in Treasuries, MBS still running off) argues for gradual, not dramatic, spread tightening. Reuters

What it means (buyers • agents • homeowners)

  • Buyers: With averages around ~6.2%, every 0.05–0.10% matters for DTI. Pair seller credits with 2-1/1-0 buydowns to lock payment while we await PCE/Fed. Freddie Mac
  • Agents: Quote payment ranges, not a single rate; headline sensitivity is elevated until PCE (Fri) and FOMC (Tue/Wed). Use yesterday’s services PMI to frame “slow growth, sticky services prices.” Reuters
  • Homeowners: If your note is ≥7%, today’s levels can pencil for rate/term; cash-out remains case-by-case with pricing tiers. Use PMMS 6.19% as a public benchmark, then tailor with LLPAs/buydowns. Freddie Mac

Lock vs. float (framework—not a prediction)

  • Cautious float if: ≥30–45 days and you’ll auto-lock on an MBS-friendly rally after PCE or on a decisive 10-yr break <4.00%. MarketWatch
  • Lock now if: inside 15–20 days, tight DTI/CTC, or your deal can’t absorb a firm PCE or a hawkish Fed message.

Stay safe and make today great!