This is Matt Graham with the MBS Live Market Update. Last week was an interesting one with headlines that made it seem like the bond market should move quite a bit more than it actually did. There are also some surprise market movers, especially right out of the gate on Monday morning with global financial markets reacting to the deep seek news that had to do with an upstart Chinese AI platform that allegedly accomplished just as much as ChatGPT in much shorter time and with significantly fewer resources, both in terms of hardware and finances. This of course made the market fear that the chip stocks were overvalued and caused a massive selloff led by Nvidia and that caused a spillover into the bond market, thus pushing rates lower out of the gate on Monday morning, that trade mostly ran its course, especially for the bond market on Monday and the rest of the week was spent moving broadly sideways, although there were a few minor reactions to both economic data and tariff announcements or tariff rumors or tariff headlines, depending on how you want to categorize them. Of course, now over the weekend, we have confirmation of tariff percentages and timeframes. Although just in the past hour, the timeframe on the Mexico portion of the tariffs has been pushed back to March 1st and the bond market and the stock market and Forex markets reacted to that swiftly up until then. There was a bit of a counterintuitive trade depending on the mindset from which you approached all of this tariff stuff. The bill of goods that most have been sold has involved some measure of inflationary impact from tariffs. And that’s logical. And it is the part of what tariffs can do to financial markets that can create inflation, of course, but there’s always a question of just how much inflation it creates and whether or not that inflation is offset by other stuff recall that we’ve discussed a few times in the run up to all of this tariff stuff, the example from 2019 where we had a trade war, so to speak, with China and additional tariffs. Beyond what were already in place, and there was some inflation in some sectors, but it was overshadowed by the economic impact of the trade war and generally softening economy, both at home and especially globally, and that ended up having a downward pressure effect on rates as opposed to upward pressure, which would be the discrete takeaway from tariffs causing inflation. So that’s a good example to keep in mind. It’s not a guarantee that things will pan out the same way this time around, but at the very least, it’s a proof of concept that tariffs in and of themselves don’t always play out exactly as you’d expect from an inflation standpoint. They do other things, too, and those other things can have other impacts on rates, as we have seen this morning. This morning, before the back and forth on Mexico tariff time frame, we got a big stock sell off in the overnight session, and that prompted bond buying and took yields to their lowest levels in more than a month and we, of course, again, have bounced back after the tariff deadline was pushed out to March 1st. But it is incontrovertible that we had gains in the overnight hours because of tariffs, gains and bonds because of tariffs. Again, that is counter to the prevailing wisdom that says rates have to go up due to the inflationary impact of tariffs. So the other thing that people can make a case for is that there was a certain amount of expectations for higher inflation and higher rates priced in ahead of all of this, but I digress. I think it makes sense what I’m saying. Hopefully it does, and we can move on to discussing what’s ahead. Because we do have economic data this week and despite all the noise from tariffs and all of the guesstimating on what the impact of various fiscal policies will be, it will ultimately be economic data that sets the bigger picture tone for where rates are going and we haven’t had significant economic data for a few weeks now, and that will change this week as we get the standard issue first week of the month batch of economic data, including the big jobs report on Friday. It bears repeating that the Fed is a little bit more focused on inflation right now than the jobs report, but it also bears repeating that the jobs report will always have a big potential impact on rates if it comes in much higher or lower than expected. That’s all 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.