This is Matt Graham with the MBS Live Market Update. Last week had its ups and downs for the bond market. It ultimately ended roughly where the previous week ended, but it didn’t start that way. Monday was weaker out of the gate as over the weekend. Headlines regarding tariff exclusions drove a risk on trade. In financial markets, that generally means stocks are moving higher in price, and bonds are moving higher in yield. 10 year yields started the week near their highest levels. In several weeks with 4.34 being a well traveled technical ceiling. We continue to watch that ceiling as the week progressed because it was the lower end of a gap that was formed in domestic trading. Anyway, going back to February 24th. What that means is back on February 25th, yields dropped somewhat significantly from February 24th and created a gap in the bar chart or the candle chart and technicians believe some of them that when those gaps are formed and momentum move ensues, that eventually. Yields will return to fill that gap before buying again, assuming the gap is happening in a downward direction as it did this time and indeed over the next few days, there was some evidence that may have happened. Not to try to convince anybody that the future can be predicted by such technical patterns, but it is one way to approach the paradoxical move that happened later in the week. More on that in a second as the week continued, we had S&P services. PMI data come in higher than expected and that contributed to the weakness on Monday morning, ultimately leading to the highest close of the week. Tied with Wednesday really, and treasury auctions proceeded on Tuesday, Wednesday, and Thursday, but had very little effect on trading levels. Other economic data included several housing related reports. We had S&P Case Shiller and FHFA home prices out on Tuesday morning. Neither were interesting or eventful. Both are still holding in that 4.7 to 4.8% year over year range. Not sustainable in the longer term, but not causing any housing market concern in the short term with us. As always. Wednesday morning had MBAs application data purchases ticked up modestly and remain generally in the higher end of their range over the past two years, although that range is generally at the lowest end of much more than two years. And refis ticked down just a little bit, but remain in strong territory relative to most of the last year. Going back to the rate rally at the end of summer last year, heading into fall last year refi demand was naturally quite a bit higher. But that’s to be expected given the gap in rates. After that, new home sales came in right in line with expectations for the most part, 676 versus 680K at an annual pace. They have been boring, sideways, and not as depressed as existing home sales and pending home sales. We got pending home sales the following day, and those were, still depressed, but a little bit higher than they were. Last month, generally kicking around the lowest levels in a long time. For the past two years now, fed speakers were out throughout the week. Most of them were hawkish, saying things like tariff uncertainty, inflation uncertainty, and the possibility of needing to keep rates higher for longer. All that good stuff, but it all hinges on uncertainty relating to tariffs and how that’s going to impact inflation and the economic demand in general. Most of the week was spent waiting for Friday’s data, which was PCE personal consumption expenditures price index. Not to be confused with the quarterly PCE price index. That came out a day before with Thursday’s GDP data. That was for Q4. This PCE on Friday morning was for the month of February, and an important inflation reading one that we mostly knew about due to CPI and PPI that had come out two weeks prior. But nonetheless, a potential market mover. It actually came out higher than expected at the core level, which is the kind of thing that you would expect to push rates higher, but rates actually fell. A couple potential reasons for that, and they’re not reasons people would probably be discussing if rates hadn’t fallen and required. Analysts, pundits, traders to rush to concoct an explanation. So yes, everybody’s fully aware of that, but when the market moves, you need to explain why it’s moving. One explanation is that the unrounded number for core month over month inflation was fairly low, almost low enough to be a 0.3 reading instead of the 0.4 reading that we got and from there we can start to talk about non inflation related reasons for bond buying that may have been taking place. First off, stocks had already started tanking on Friday. And they continue to tank this morning and that risk off trade. Surrounding tariff uncertainty is something that has generally benefited bonds and the other thing we can consider is month end trading in the bond market. Always an esoteric and difficult to explain topic, but suffice it to say it involves traders trading for reasons that have nothing to do with economic data or news headlines. Those trades are gonna be coming in no matter what happens during the course of that month and week, and they can come in. For the better or for the worse? In this case, coming in for the better. Helping bonds hold ground and gain ground despite that higher inflation reading. Could it be that driving the gains? Maybe. But it’s probably a combo deal with stocks. And probably less to do with trying to explain away the Unrounded numbers in PCE. Looking ahead, little needs to be said about the first week of any given month because that’s the one with the preponderance of significant economic data culminating in Friday’s. Big jobs report. Even though we’re more focused on inflation in general these days, the jobs report always has a chance to send the bond market moving big in either direction. 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.