Fannie Mae and Freddie Mac will add loan-level buydown data to MBS this spring, giving investors clearer insight into prepayment risk tied to temporary rate incentives.

The mortgage broker trade group put out a white paper calling for lowering transaction costs, increasing housing supply and reducing regulatory barriers.

Mortgage delinquencies increased across loan types, and while 30-day late payments showed overall improvement, later-stage distress worsened.

The 5-year yield swung sharply after conflicting BLS jobs and CPI data, with softer inflation boosting rate-cut hopes, according to the CEO of IF Securities.

The Bureau of Labor Statistics released its January Consumer Price Index Friday, showing that inflation rose 0.2%, while the annual rate eased to 2.4% after holding at 2.7% for several months. The data reduces the likelihood that the Federal Reserve will cut interest rates in the near future.

Bonds Close Out Epic Week of Resilience With Friendly Data

Friday was a logically friendly day thanks to slightly lower CPI. But no matter what happened on any of the other 4 days, this week was all about bonds ending up at much stronger levels in spite of a jobs report that should have sent rates higher on Wednesday. Ironclad justification remains impossible, but the leading theory involves heavy liquidation mode in stocks/commodities on Thursday. Holiday weekend positioning could also be a factor. As such, we’ll learn a lot more next Tuesday–especially if stocks find a reason to stage a big bounce. 

Econ Data / Events

m/m CORE CPI (Jan)

0.3% vs 0.3% f’cast, 0.2% prev

m/m Headline CPI (Jan)

0.2% vs 0.3% f’cast, 0.3% prev

y/y CORE CPI (Jan)

2.5% vs 2.5% f’cast, 2.6% prev

y/y Headline CPI (Jan)

2.4% vs 2.5% f’cast, 2.7% prev

Market Movement Recap

12:45 PM Stronger After CPI and sideways since then. MBS up roughly and eighth and 10yr down 4bps at 4.06

01:52 PM Losing ground modestly.  MBS still up 2 ticks (.06) and 10yr still down 3.5bps at 4.066

02:58 PM MBS up an eighth and 10yr down 4.7bps at 4.053

When the administration announced that Fannie and Freddie would be buying mortgage-backed securities in early January, rates fell sharply to the lowest levels in more than 3 years. After a moderate rebound the following week, we’ve been holding mostly steady in a range that was 0.1-0.2 above those long-term lows. The past two days have brought enough improvement that the average lender is once again at levels that are close enough to the long-term lows seen on January 9th and 12th. What accounts for the strength? In today’s case, incremental gains were driven by a tame reading in January’s Consumer Price Index (CPI), a key inflation report. In general, lower inflation coincides with lower rates, and today’s reading was slightly lower than expected. 

Existing-home sales pulled back sharply in January, quickly dashing any hopes that December’s year-end rebound brought, as harsh winter weather and still-tight supply conditions weighed on activity. Sales fell 8.4% to a seasonally adjusted annual rate of 3.91 million, the lowest levels since November 2024. According to the National Association of Realtors (NAR), transactions were also 4.4% lower than the same time last year, with every region posting both month-over-month and year-over-year declines. “The decrease in sales is disappointing,” said NAR Chief Economist Lawrence Yun. Perhaps an understatement, especially after the strong showing last month. He added that affordability is nevertheless improving, with wage gains outpacing price growth and mortgage rates running lower than a year ago, though supply remains limited. Inventory dipped slightly from December but stayed above year-ago levels. Total housing inventory registered at 1.22 million units, down 0.8% from the prior month and up 3.4% from January 2025. The months’ supply of unsold homes increased to 3.7 months, up from 3.5 months in December. Price pressures persisted. The median existing-home price for all housing types rose to $396,800, up 0.9% from a year earlier and marking the 31st consecutive month of annual gains. Yun noted that homeowners continue to build substantial equity, estimating that the typical owner has accumulated more than $130,000 in housing wealth since early 2020.

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CPI came in just a hair below forecasts at the headline level and right in line with forecasts at the core level (unrounded .295 vs .300). Shelter components continued lower with Owners’ Equivalent Rent at 0.220 (basically a cycle low if we ignore the low quality data collection surrounding the government shutdown). The only potential hurdle for the bond market to clear was the surge in the supercore reading to the highest levels in a year. Despite a fair amount of attention paid to supercore in 2025, bonds seem willing to look past this development today, perhaps concluding that it’s more important for housing-related metrics to continue their decline. 10yr yields are adding to this week’s rally, down about 3bps at 4.07 an hour after the data.