This is Matt Graham with the MBS Live market update. Last week was a bad one for the bond market with yields moving to the highest levels since early February, and short term yields moving to the highest levels in many more months than that. Mortgage rates also at the highest levels since September, as the bond market generally continued to have a hard time with the inflation implications from the war in Iran. The start of the week was not too bad. In fact, there was some improvement on Monday, but not for any particular reason other than oil prices, just holding the line. The data was largely ignored throughout the course of the week, but there were some exceptions to that later, which we’ll talk about in a moment. We also had supply to take down not only in the form of scheduled treasury auctions, but also heavy corporate bond issuance, and then the dark horse market mover that not too many people were talking about, but that traders certainly may be considering is a process moving through the back channels to facilitate refunds for tariffs. And the reason that would matter to the bond market is that. Any money that’s refunded will need to be made up for with new treasury issuance, and that is negative for the bond market. Since we already know Monday was off to a fairly sideways start. We’ll move on to Tuesday. It also started sideways. Didn’t necessarily finish that way. There was some econ data in the form of existing home sales, which came in stronger than last time at 4.09 million versus 4.02. But that’s not a market mover. Later in the day on Tuesday, bonds started to lose some ground, but not in a super threatening way. 10 year yields were up to roughly 4.15 by the end of the day, even though oil prices had fallen, this was our first clue that bonds might be making a move on their own accord. Rather than just paying attention to what was going on at oil prices. Wednesday really proved that theory to be true when yields broke higher without any major help from oil and it was quite plain to see on a chart that overlays oil prices and bond yields. Could that have to do with supply, with the corporate bond issuance and treasury options to take down? Certainly to some extent. It could also be that dark horse tariff stuff we just talked about. We did have econ data though, and although we knew that CPI, the Consumer price Index, the big inflation report was not going to help bonds, we didn’t necessarily know it wasn’t going to hurt. The reason it wouldn’t help is because the market would be waiting to see what the impact is from higher oil prices. But the reason it could hurt is that it could set a higher baseline for inflation relative to investor expectations. Heading into this unknown chapter where oil prices. Have an impact on inflation moving forward. CPI came in line with expectations. Unrounded numbers were a little bit higher than expectations. Some of the internal components were not quite as low as the market may have hoped for, and so when you consider that combined with whatever’s coming in the form of energy, price inflation, that filters through to the official data, it was moderately bond market negative and started things moving in the wrong direction in the morning. Nonetheless, it was the afternoon hours that really saw things break away in the disproportionate way relative to oil prices, which have been our general correlation of the past two weeks. So we will put a pin in that and continue to revisit it as we learn more about that dichotomy. Thursday oil was on the rise again, bringing Treasury yields up with it. The econ data was decent with jobless claims coming in, roughly in line with the expectations and no major market movement as a result, but yields finished the day at the highest levels of the week. At that point and Friday only added to that weakness, albeit not at first on Friday morning, there was a ton of econ data, the GDP coming in week at 0.7 versus 1.4 and core retail sales, which excludes autos gas and building materials coming in at 0.0 versus 0.8 last time that helped yields move down a little bit in the morning, but oil continued to move higher. Throughout the session, ultimately pulling treasury yields along for the ride and resulting in the highest closing yields in treasuries in just over a month, and the highest mortgage rates again, since September, early September looking ahead to this week, the focus is clearly on the Fed announcement. Unless we’re just talking about continuing to watch geopolitical headlines. The Fed will not be cutting rates. There’s a 0% chance of that, but the market is curious to see what. The geopolitical events have done to the rate outlook in the dot plot, which we will get at 2:00 PM along with the Fed announcement on Wednesday afternoon and then of course there’s the press conference at two 30, and even though Powell is on the way out as the Fed share, the market is still tuned into that press conference for an even deeper sense of what’s going on at the meeting in terms of the debate among other Fed members that’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBS Live!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.