BONDS: Modest Extension Lower In Core Bonds On Hawkish BoJ Sources, JGBs Unmoved

Mortgage applications were essentially unchanged last week even if it masked a strong uptick in new purchase applications. Mortgage rates have been steady in recent weeks, benefiting from a sizeable tightening in spreads to swap rates. 

• MBA composite mortgage applications inched 0.6% higher last week (sa) after -1.9% and 7.1% in the previous two weeks.
• The details were a little more interesting than that suggests though, with new purchase applications increasing 5.8% (largest since early Sept and before that early June) compared to refi applications slipping -3.4%.
• Levels relative to 2019 average for context: composite 71%, new purchases 67%, refis 72%.
• The flatlining in overall activity came as the 30Y conforming rate ticked up 3bps to 6.34% after the 6.30% two weeks prior had been the lowest since Sep 2024.
• The relative stability in mortgages rates in the latest few weeks has come with a further tightening in spreads to swap rates.
• The 30Y mortgage rate to the average 10Y swap rate through the week fell further to 267bps, a fresh low since Apr 2022, compared to an average 285bp in Q1 and a rough range of 300 +/-5bp for some months after reciprocal tariff announcements in April prompted some additional caution in lending standards.
• This narrowing in spreads will be well received by the Trump administration.

• In the FI space, Bund futures are trading above their recent lows. A short-term bear cycle remains intact and Monday’s fresh cycle low reinforces the bear theme. The contract has cleared a number of important support points; the 50-day EMA, at 129.14, and 128.92, the 61.8% retracement of the Sep 25 - Oct 17 bull leg. Scope is seen for an extension towards 128.52, the 76.4% retracement. Resistance is at 129.31, the 20-day EMA.
• The trend theme in Gilt futures remains bullish and this week’s strong bounce - so far - reinforces a bull theme. Note that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on the bull trigger at 93.98, the Nov 4 high. A clear break of this hurdle would confirm a resumption of the uptrend and open 94.24, a 1.618 projection of the Sep 3 - 11 - 26 price swing. Support to watch lies at 93.09, the 20-day EMA.

Maric Post, the Belgian Debt Agency's Director of Treasury and Capital Markets, speaks to MNI.- On MNI Policy MainWire now, for more details please contact sales@marketnews.com