There’s been remarkably little change in mortgage rates so far this week. Monday saw a modest increase vs Friday, but since then, there’s been essentially no change. Today’s rates were technically 0.01% lower than yesterday’s, but many lenders were perfectly unchanged. This is an acceptable result given the presence of high stakes economic data and ongoing war related headlines. The data in question was the Consumer Price Index (CPI), an inflation report that occasionally causes significant volatility for rates. Today’s CPI (for the month of May) came in right in line with expectations, and slightly lower than expected when excluding food and energy prices. It seems to bear repeating that when CPI comes in lower than expected or lower versus the previous month, this rarely means that prices are falling. Rather, prices simply didn’t go up quite as much as last month, but they’re still rising at an unacceptably quick pace. Fortunately, rates get in position for forecasted results. Thus, the data merely needs to align with forecasts to avoid causing volatility.

War Headlines Cause Mid-Day Reversal

Bonds started the day inconsequentially weaker and picked up some gains after CPI came in a hair lower than expected at the core level. Just before noon, yields began rising and ultimately hit the 3pm close up a few bps versus yesterday. MBS were down about an eighth of a point, but it wasn’t enough for the average lender to bother with a reprice. A forensic audit of the afternoon weakness leaves only one explanation: war headlines. Specifically, Trump said the U.S. would be “attacking hard again today.” The market may increasingly take these headlines with a grain of salt, but it doesn’t ignore them. Both oil prices and bond yields moved higher after that and there were no notable alternative explanations for the 10yr weakness although the aftermath of the 10yr Treasury auction may have caused some supply/demand imbalances that contributed.

Econ Data / Events

m/m CORE CPI (May)

0.2% vs 0.3% f’cast, 0.4% prev

m/m Headline CPI (May)

0.5% vs 0.5% f’cast, 0.6% prev

y/y CORE CPI (May)

2.9% vs 2.9% f’cast, 2.8% prev

y/y Headline CPI (May)

4.2% vs 4.2% f’cast, 3.8% prev

Market Movement Recap

08:41 AM Slightly stronger after CPI. MBS up 1 tick (.03) and 10yr up 0.6bps at 4.526 (down from 4.538 before the data).

11:34 AM little changed from earlier levels. MBS up 1 tick (.03) and 10yr roughly unchanged at 4.519

11:55 AM Some volatility after Trump comments on attacking Iran. MBS down 1 tick (.03) and 10yr up 1bp at 4.529

02:55 PM Bouncing back from weakest levels. MBS now down 3 ticks (.09) vs 6 ticks (.19) earlier.  10yr now up 2.3bps at 4.541 vs intraday highs of 4.559

Most understand this, but some forget: CPI numbers on econ calendars are not prices. They’re the change in prices. We bring that up in case anyone thinks today’s core monthly CPI of 0.2 means that prices are lower than last month when the core was 0.4. While it’s a decent monthly number and lower than the expected 0.3, it’s also 2.4% if repeated for 12 months (still above the 2.0% target). Plus, we often forget that the 2.0% inflation target is for headline CPI–not core–and that is running at 4.2% y/y presently. Thankfully, forecasters were right on target with headline expectations, so despite being a lot higher than anyone would like, the bond market is not surprised and thus holding at levels just slightly better than before the data.
If you see a chart of Owners’ Equivalent Rent (OER), remember that last month’s pop was driven by the October data being zeroed out due to the government shutdown combined with the fact that OER cohorts are only compared every 6 months. Thus April’s CPI (the pop in the chart below) involves an April vs October comparison to update the monthly data. Today’s data involves a May vs November comparison, and we had data for November.

Excluding food, energy, and shelter, CPI was up 0.273–a slower pace than last month.

The lender has delayed and denied requests to make its CEO available to testify under oath since December, suggesting his testimony was unnecessary.

Contract closings rose 3.2% to an annualized rate of 4.17 million last month, according to data released Tuesday by the National Association of Realtors.

Mortgage lock volume fell 5.4% in May as rates climbed, but declining pull-throughs suggest some borrowers are reconsidering loan plans amid ongoing rate volatility, Optimal Blue found.

The number identifying it as such is significant, but not universal, as servicers also face product-specific challenges and determine whether and how to use AI.

Zachary Carpenter, tapped to take over as Farmer Mac CEO in March 2027, will now take over the position on July 1, with Bradford Nordholm as CEO emeritus.

Bonds End at Strongest Levels

Unlike yesterday, which saw an uneventful open give way to intraday weakness, today’s momentum was mostly friendly. Bonds avoided panicking in the morning hours. Mid-day war-related headlines made for some quick 2-way trading in the noon hour, but yields never went any higher than the AM highs. After sorting out that volatility, steady gain brought yields to the lowest levels of the day in the final hour of trading. For context, this is right on the highest edge of the short-term range seen in the week and a half leading up to the jobs report. 

Econ Data / Events

NFIB Business Optimism Index (May)

95.3 vs 96.0 f’cast, 95.9 prev

ADP Employment Change Weekly

29K vs — f’cast, 35.75K prev

Trade Gap (Apr)

-55.90B vs $-56.1B f’cast, $-60.3B prev

Market Movement Recap

08:23 AM A hair stronger overnight. MBS up 1 tick (.03) and 10yr down 2bps at 4.543

01:38 PM MBS up 2 ticks and 10yr down 3.6bps at 4.528

04:15 PM MBS up 5 ticks (.16) and 10yr down 4.4bps at 4.52

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