Yesterday afternoon’s tariff announcement sent financial markets on a ride that ultimately resulted in sharply lower stock prices and moderately lower bond yields. Stocks don’t always correlate with bond yields, but that has been a common pattern since late February. The correlation between bond yields and mortgage rates, on the other hand, is perpetual and nearly flawless. After all, “yield” is just another word for “rate.”  Additionally, mortgage rates are based on mortgage-backed securities (MBS) which are basically bonds.  All that to say: rates have been benefitting from the market chaos that’s been hurting stocks, and stocks got hurt quite a bit over the past 24 hours.  Considering the average 30yr fixed rate was already close to its lowest levels since mid October yesterday, it’s no surprise to see an official breakout today. [thirtyyearmortgagerates] Tariffs and stock market volatility are not the only games in town for rates. Economic data is also very important and tomorrow’s jobs report is typically the most important economic report of any given month. Depending on the results, it could help rates move even lower or bounce back up into the recent range. 

The Chinese curse, “May you live in interesting times” can easily be applied to the residential mortgage business in the last month or so. This week and yesterday was no exception, with some brokers benefitting from both Trump’s tariffs (fully expected to slow the economy, driving rates lower) and United Wholesale trying to keep its market share while Rocket Companies is spending about $11 billion to cement its place in real estate transactions and be in touch with a potential borrower from shopping for a home all the way to servicing it. (More below.) Meanwhile, just in time for the MBA’s Advocacy event next week in Washington, DC, House Republicans, led by Rep. French Hill, R-Ark., have sent letters to top US financial regulators urging them to reverse several Biden-era banking rules. Their priorities include rescinding the revamped Community Reinvestment Act (CRA), rolling back CFPB rules on overdraft fees and medical debt, and pausing Basel III reforms. The lawmakers said recent regulations have hurt innovation and access to financial services, especially for families and small businesses. (Today’s podcast can be found here and this week’s is sponsored by Calque. Calque provides a binding backup offer on your borrower’s departing residence to clear the existing mortgage balance and closing costs in 48 business hours or less. Today’s features an interview with Waymaker Mortgage’s Scottie Campbell and Revest Loans’ Jim Black on how buy-before-you-sell loan products are helping drive up origination volumes.)

While plenty of uncertainty remains over the finer points of Wednesday afternoon’s tariff announcement, markets have heard enough to brace for impact on global trade. That “bracing” is being traded in the form of a flight to safety (sell stocks, buy bonds) that began yesterday and continued overnight. 10yr yields were already close to 4.0% before this morning’s weaker ISM Services data, and have been inching closer since then. 
That said, the additional “inching” isn’t really in response to ISM. Almost all of today’s trading looks like an afterthought compared to yesterday’s initial tariff reaction and the early overnight trading. 

Steel, aluminum, and automobiles already subject to Trump’s duties will not face reciprocal tariffs. Lumber products expected to soon be hit with a tariff investigation will also be exempt.

Some members of the Senate, where the GOP majority is thinner, also are asking the Federal Housing Finance Agency to reveal more about planned mortgage reforms.

The housing regulator has been mum on details about its reshuffling, but Secretary Scott Turner has emphasized mission-critical functions would persist.

Regulators should approve the deal because post-merger, the servicing market remains fragmented and the mortgage origination business is even more dispersed.

Publicly traded lenders, including UWM, Rocket Mortgage and Guild Mortgage, saw personnel expenses increase significantly throughout last year.

Late Day Volatility on Tariff Speech

The long-awaited tariff speech took markets for a ride in both directions this afternoon. After the dust settled, the net effect was “buy bonds, sell stocks.” Notably, that was a sharp departure from the initial net effect during the early part of Trump’s speech. The ultimately friendly result was enough to get Treasuries back into positive territory and for MBS to get sorta close.  In the bigger picture, the volatility didn’t really matter as both stocks and bonds remained in the same old ranges. 

Econ Data / Events

ADP Employment

155k vs 105k f’cast, 77k prev

Market Movement Recap

08:23 AM Stronger overnight and no major reaction to ADP data.  MBS up an eighth of a point and 10yr down 3.6bps at 4.127

11:50 AM Losing ground as stocks rally.  10yr up 1.7bps at 4.179 and MBS unchanged.

12:29 PM More weakness.  MBS down an eighth of a point now and 10yr up 4.8 bps at 4.21

04:19 PM 10yr yields are up 6.7bps at 4.23 and MBS are down 6 ticks (.19) on the day and more than a quarter point from rate sheet print times.

Mortgage rates didn’t move much today, which is pretty crazy considering the volatility present in financial markets in the afternoon.  That’s when the long awaited tariff announcement speech took place.  There was always a decent chance of a whipsaw in response and a whipsaw is what we got. Fortunately, the net effect for the bond market (bonds dictate interest rates) was positive. In other words, interest rates received good news while stocks received bad news.  The catch is that bond had been having a somewhat downbeat day until then.  As such, the favorable reaction to the tariff news merely got the bond market back to suggesting fairly flat interest rates compared to yesterday’s latest levels.  Most lenders will wait until tomorrow to make any friendly adjustments, and that assumes bonds hold at the same levels overnight.   Bottom line: plenty of market volatility in the afternoon, but ultimately implying very little change in mortgage rates.