Nice Rally on Data and Auction Results

Wednesday ended up being a straightforward session for bonds with a large CPI beat prompting a decently swift rally in the bond market. Shorter maturities did the best–also logical considering the proximity to the Fed Funds Rate and the fact that Fed rate expectations rallied 8+ bps. But longer maturities got a bit more love after a well-received 10yr Treasury auction at 1pm. Respectable results on a day where bonds are already rallying are all the more respectable.  With that, bonds hit new low yields for the day (MBS hit new highs) and neither strayed far after that.

Econ Data / Events

Core CPI m/m 

0.130 vs 0.3 f’cast, 0.2 prev

Core CPI y/y

2.8 vs 2.9 f’cast, 2.8 prev

Market Movement Recap

08:44 AM 10yr yields are down 3.7bps at 4.439 and MBS are up a quick quarter point.

01:03 PM Decent 10yr auction considering the AM rally.  Bonds improving slightly as a result.  10yr down 5.6bps at 4.42 and MBS up 11 ticks (.34).

04:01 PM Near best levels in final hour.  MBS up 3/8ths and 10yr down 6.1bps at 4.415

After a calm start to the week on Monday and Tuesday, we were likely to see a bit more volatility on Wednesday due to important events on the calendar. The first was the morning’s release of the Consumer Price Index (CPI), a key inflation report. Inflation is one of the most basic inputs for the bond market. Bonds, in turn, dictate interest rate movement. In general, higher inflation coincides with higher rates and vice versa.  Today’s inflation data came out much lower than the market anticipated. Bonds improved quickly in response thus allowing mortgage lenders to offer lower rates.  The average lender is back in line with levels seen on June 5th. The second important event was the scheduled 10yr Treasury auction. Treasuries are bonds that correlate well with mortgage-specific bonds. As such, a decisive move in 10yr Treasury yields usually means mortgage rates are making similar moves.  Today’s auction didn’t add too much benefit over what was already in place after the inflation data, but it certainly didn’t hurt. If anything, the average lender is holding back just a bit relative to where they would normally be given the market’s trading levels.  This is fairly normal when trading has been volatile. If bonds maintain these gains tomorrow, we could see additional improvements (emphasis on “if”).  

Here in Tampa, I was walking through the hotel bar last night when I overheard someone say, “Age 60 might be the new 40, but 9:00 PM is the new midnight.” True dat. (There is also plenty of attention on the House Financial Services Committee advancing the Trigger Leads Bill.) Speaking of Florida, the state has certainly been subject to some dramatic business cycles over the last 100 years since the railroads helped populate the Sunshine State. ATTOM released its May 2025 U.S. Foreclosure Market Report, which shows there were a total of 35,498 U.S. properties with foreclosure filings, default notices, scheduled auctions, or bank repossessions, down 1 percent from a month ago but up 9 percent from a year ago: fewer starts but a continued rise in completed foreclosures. Delaware, Florida, and Illinois posted highest foreclosure rates. (Today’s podcast can be found here and this week’s are presented by Flyhomes, the leading wholesale lender for Buy Before You Sell solutions. Whether your borrowers run into DTI issues, need to unlock home equity for down payment, make a stronger, cash-like offer, or even move potentially with no cash out of pocket, Flyhomes provides a full suite of financial products to help them move forward, before selling their current home. Hear an interview with Flyhomes Dan Richards on the growing buy-before-you-sell (BBYS) market, with insights on the process, competitive advantages, wholesale focus, industry trends, and how brokers and consumers can get up to speed on this evolving home buying solution.)

Heading into today’s CPI data, our stance was that we’d need to see the monthly core number come in at 0.1 vs 0.3 in order to see much of a friendly response, and that is exactly what’s playing out.  If markets weren’t taking inflation with a grain of salt at the moment, this would likely be worth a much bigger response.  As it stands, Fed Funds Futures didn’t even erase the spike seen after last Friday’s jobs report, and 10yr yields only dropped to 4.42 before bouncing–well short of the 4.39 pre-NFP levels.

Shelia Bair, who chaired the Federal Deposit Insurance Corp. from 2006 to 2011, said that while post-crisis reforms may have overregulated banks, the current deregulatory swing could undermine important protections and lead to another banking crisis.

Cara Petersen, the Consumer Financial Protection Bureau’s top enforcement official, said the Trump administration has “no intention to enforce the law in any meaningful way.”

Regulators’ decision to lift a seven-year-old cap on the size of the megabank’s balance sheet will produce benefits over the long haul, but it won’t result in any sudden gains, according to CFO Michael Santomassimo.

A former senior accountant at CrossCountry Mortgage claims she was let go from her job three years prior because of her age.

While lenders have come out with more products for the spring season, rate lock data finds buyers still hesitant to act because of high mortgage rates.

No Drama Today. How About Tomorrow?

After a slightly bumpy start for reasons that remain unknown, the bond market settled into an uneventful sideways grind that lasted through the 3pm CME close. Both MBS and Treasuries were effectively unchanged and the latter didn’t give a second thought to a fairly weak 3yr Treasury auction. Trade headlines were less than meaty, but talks between the US and China are now said to potentially move into a 3rd day. That means tomorrow’s calendar will be shared between trade-related headlines, a 10yr Treasury auction (more relevant than the 3yr) and CPI data. As far as this week is concerned, this is as action-packed as we’ve seen the calendar, although that’s not saying too much given prevailing sentiment toward inflation data.  Specifically, the market cares more about how it looks several months from now.  It’s not that it can’t have an impact, but it would likely be dulled by the caveats.

Market Movement Recap

09:35 AM Modestly stronger overnight and little-changed so far.  MBS up 1 tick (0.03) and 10yr down 2.1bps at 4.454

01:08 PM No reaction to 3yr auction.  MBS down 1 tick (0.03) and 10yr unchanged at 4.474

03:09 PM Stocks rise on trade talk comments, but bonds mostly holding.  10yr unchanged at 4.474 and MBS down 1 tick (0.03).