This is Matt Graham with the MBS Live Market Update. Last week was holiday shortened and generally uneventful as have been several of the past weeks without any access to the big ticket economic data that comes courtesy of the US government Chief. Among those is the big jobs report of course, but a close second is CPI and we will actually get CPI. This week due to special provisions for that report that allowed certain government workers to collect the data, collate the data, and ultimately publish it on the 24th. This has to do with it being important to other government functions in ways that other economic reports are not. Whether or not that will be a big market mover remains to be seen. Certainly inflation is one of the two mandates of the Fed, and those mandates, of course, are intention, meaning that the labor market has shown signs of weakening while inflation has not. Really shown too many signs of coming back down to the 2% target as quickly as fans of low rates might hope. If inflation were to show a resurgence, especially if it is related to things other than tariffs, then it’s harder to pass off as a temporary increase and it will be harder for the Fed to justify. Especially aggressive normalization stance or accommodation stance. As for market movement, last week, the biggest impact really came the previous week on Friday, and that had to do with an escalation in trade tensions between the US and China when Trump announced a 100% new additional tariff on China with 10 minutes to go. On Friday afternoon that sent stocks and bond yields swooping much lower, and those gains were actually maintained at the start of the new week. Nothing really happened on Tuesday or Wednesday, but then on Thursday there was news of. Zions Bank Corp and Western Alliance Bank writing down loans are writing down their books due to bad loans that caused some immediate weakness in equities and some eventual, strength in fed funds, futures, and short-term interest rate futures, ostensibly due to fears about short-term funding constraints. But if we try to line up the losses in the stock market with the surge in fed funds futures, they don’t exactly line up. So what may have been at play was more like the market positioning. For a reaction that never really played out in to threatening a fashion and with those positions on the books and needing to be unwound. When they began to be unwound, it caused a friendly little snowball for the bond market. In other words, traders were betting on a short term liquidity funding crunch, pushing short term rates higher in the wake of that banking news, and when things didn’t get as bad as they thought. Those positions had to be unwound, and so short term rate futures ended up benefiting. In addition, the economic implications of those banking developments also support an accommodative stance and improved outlook for fed rate cuts. If it’s something beyond that, it wasn’t something that was super obvious, but just be aware. There were many news stories that covered it as if it was obvious. I was not able to line the movement up in such a way that would make it quite so simple. In any event. We can still look at last week as a general downtrend in yields ultimately resulting in 10 year yields, breaking below 4% by Friday, and they’ve done that once again this morning after opening just a little bit weaker. Again, we have almost no economic data this week other than CPI on Friday, but between now and then we will get a few tidbits but nothing. In the huge market mover category, 20 year bond auction on Wednesday afternoon and existing home sales on Thursday. Apart from that, it is pretty silent and we’re just waiting for an end to the government shutdown so we can get the market moving data and bonds can’t find a reason to make a really big move until all of that happens. 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 MBSLive!
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.