This is Matt Graham with the MBS Live Market Update. It’s been a bumpy ride for interest rates recently, quite obviously, and while last week was no exception, the pace initially subsided just slightly Nonetheless, rates did move higher, with Wednesday seeing the highest average thirty-year fixed rates since November first, twenty twenty-three. On the bright side, if there is one, that’s a lot better than the story that’s being told by ten-year Treasury yields, which hit their highest levels since two thousand and two. The first three days of the week were actually mostly sideways in the bigger picture. That’s the sort of final chapter we often see when a sharp, sustained rate spike is getting ready to do something else. Thursday’s action added to the optimism as rates managed to recover substantially with the help from an old ally, a European ally in this case. What do I mean by that? More than a decade ago, you may recall concerns over potential contagion in the EU debt market helped US rates remain a lot lower for a lot longer than they otherwise would have been. Europe’s monetary policy response also helped get us back to long-term lows even after the taper tantrum of twenty thirteen. That had to do with ECB QE. By the time Brexit helped rates hit new long-term lows in twenty sixteen, that was basically it, and Europe increasingly fell out of the rotation of things that we in the US bond market are worried about on a day-to-day basis. Very long story short, French fiscal concerns, yes, that’s France in Europe reignited a small-scale version of that old-school contagion fear last week. In other words, French credit spreads versus German Bund yields blew out to wide levels, signaling contagion fears, and that always helps German Bunds and US yields move a bit lower, all other things being equal. Friday morning initially took yields even lower after the big jobs report headline came in much lower than expected. Unfortunately, it didn’t stick. In order to understand why, though, some paradigm shift is required. So while it’s true that non-farm payrolls, AKA NFP, which refers to the monthly job gain or loss in the big jobs report have long been the most important part of that report, that began to shift in twenty twenty-five due to changes in the labor force composition. By early twenty twenty-six, we even had Fed speakers warning that markets should focus on the unemployment rate to get a cleaner read on how the labor market’s evolving. In fact, some research even suggests it doesn’t take any new job growth to keep the unemployment rate flat these days. That’s because fewer workers are entering the workforce relative to those leaving the workforce, and that means it doesn’t take new jobs for unemployment to stay flat. That means a big drop in payrolls wasn’t exactly the good news that interest rates were hoping for. At first glance, it seemed like the unemployment rate was also higher because it rose from four point one to four point two, but there’s a caveat. Yes, four point two is higher than four point one, but those are rounded numbers. And the unrounded unemployment rate only rose to four point one seven five from four point one four one, a much smaller increase. Moreover, if we adjust for the monthly growth in the labor force, which has moved up a little bit more than it has on average recently, the unemployment rate would have come in at three point nine five one, quite a bit lower than last month. Simply put, it was anything but a weak number for unemployment, and the market eventually traded accordingly. In addition to that nuance in the jobs report, the French Connection also reversed course. In other words, French credit spreads had blown out the day before, but then calmed down a little bit on Friday, and that coincided with bond yields moving back up, as did a moderate uptick in oil prices, although we’d caution against expecting oil to set the tone in the big picture for rates from this point on. The new week is also already off to a bumpy start. We opened flat, but we’re giving way to renewed selling pressure now, and it’s frustrating because there is no good reason for the selling in terms of timely news or economic data. Bonds continue to trade on broad motivations that cannot easily be measured in a timely way. These include things like apprehension about excess bond issuance, both in Treasuries and corporate bonds, lower foreign sponsorship driven in part by weaker trade relationships and tariffs, generally resilient econ data and equity markets, causing investors to seek higher and higher yields if they’re gonna put their money elsewhere implied inflation and issuance impacts from the Iran war, and of course, the Federal Reserve that’s willing to use the Fed funds rate to fight inflation, which some would be quick to point out is not the perfect tool for the job, but others would point out that’s the only tool they have. 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.