While no one can be sure exactly how things will pan out in the long run, the market is currently expressing extreme disapproval of the new tariff plans.  While interest rates had previously benefited from some of the chaos in the stock market, that ship has sailed. Now, both sides of the market are losing ground (stocks lower, rates higher). Today’s rate increase wasn’t nearly as big as yesterday’s, but it’s no less notable because it officially takes the average 30yr fixed rate to the highest level since late February.  This is the biggest 2 day rate increase so far this year, but if you didn’t know about the past 4 days, current levels wouldn’t look too troubling. [thirtyyearmortgagerates] As for motivations, that’s a fairly esoteric discussion compared to last week’s simple conclusions about investors selling stocks and seeking safety in the bond market (something that pushes rates lower). After all, the opposite correlation is now in effect.  Esoteric stuff follows: Part of the issue is the varying levels of performance between longer and shorter term rates. For example, 10yr Treasury yields are up substantially, but 2 year Treasury yields are actually down a bit.  We can also consider that this week plays host to several big Treasury auctions and investors are hesitant to keep bonds at higher prices (same thing as lower yields/rates) until we get past the auctions. There’s also the matter of future Treasury issuance implications and future demand changes surrounding tariffs.  Specifically, if trade decreases and if we’re relying on tariffs for revenue, we would need to issue more Treasuries to make up for the revenue shortfall.  Treasury issuance puts upward pressure on rates, all else equal. 

Heavy Losses as Bonds Brace For Tougher Times

This morning’s commentary suggested that “liberation day volatility has come and gone.” That’s true, but now we’ve moved on to the volatility associated with actual tariff implementations.  While there was some hope and even expectation regarding “deals” being worked out, there’s been notable escalation with China over the past 24 hours and it’s causing issues for bonds for a variety of reasons (detailed in today’s video). Inflation is a concern, but not the biggest. On an esoteric note, foreign Treasury demand correlates with import volume, so if tariffs lead to sharply reduced imports from the likes of China, it has implications for Treasury demand in the future. Compounding the problem is that a system that relies more on tariffs for revenue will then have to issue more Treasuries to address shortfalls.  Bottom line: unfriendly double whammy for rates, regardless of inflation.  

Market Movement Recap

09:35 AM Weaker overnight and losing more ground in early trading.  MBS down an eighth and 10yr up 6.7bps at 4.24

01:54 PM Decent recovery into mid-day, but getting shaky again now.  MBS down 2 ticks (.06) and 10yr up 6.3bps at 4.237

04:27 PM Weakest levels of the day with MBS down 3/8ths and 10yr up 11.5bps at 4.288

The past 2 days of selling in the bond market may seem dramatic, but they make solid sense in the bigger picture. Trump’s April 2nd “Liberation Day” was a hotly anticipated flashpoint for financial markets. Along with last week’s economic data, it led bonds to rapidly begin pricing in more negative economic scenarios. This is incredibly easy to see with the help of Fed Funds Futures, which underwent an exaggerated version of the broader bond market volatility.

We were already seeing the initial reaction fade on Friday, but this week’s headlines have basically taken us right back to where we started last week. 

The latest installment came early this morning with Bessent referring to tariffs as a “melting ice cube.” Long story short, there is still plenty of fear/uncertainty about how things will all shake out, but the past two days have shown bond traders that the administration is not simply going to tariff the global economy into oblivion–a concept that had contributed to 10yr yields breaking below 4% last week.
One final thought on stocks and bonds.  We’ve focused far more attention than normal on the recent correlation because shorter-term charts have often looked like this:

But in the bigger picture, bonds continue a supermassive sideways consolidation while stocks have traversed a much larger portion of their multi-year range.

The point is: don’t sweat it if you notice stocks and bonds aren’t perfectly following one another.  This is the bigger picture rule and the recent correlation has been the exception seen over shorter time frames. 

Republican Senator Josh Hawley sent a letter urging the Justice Department to investigate FICO’s price increases, which he said have “been borne by borrowers, especially lower-income borrowers.”

Bankers are growing frustrated as President Donald Trump’s trade policy causes turmoil in markets and confusion for clients. But banking trade groups in Washington — at least publicly — are remaining silent.

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Federal regulators’ plan to rescind reforms to the anti-redlining Community Reinvestment Act implementation rules disappoints community advocates, but gives banks clarity by reverting to longstanding CRA rules.

From reduced demand for auto loans to a slowdown in mergers and acquisitions, here’s some of the new trade war’s potential fallout for lenders.

Explaining Monday’s Wild Ride in The Bond Market

It was an extremely volatile, frustrating, and downright weird trading day for the bond market. After starting the overnight session near the lowest yields of the year, the rest of the day was dominated by heavy selling. Ask any market expert to predict today’s movement based on a simple inventory of news and events, and a 17bp jump in 10yr yields would be on exactly zero bingo cards. That leaves us to try to piece together best guesses from a laundry list of potential contributors. These are detailed in today’s video, but they include things like the inflation implications from trade policy, budgetary implications (lack of tariff revenue implies Treasury issuance), timid buyers ahead of this week’s Treasury auctions, fear of reduced foreign bond buying, and a general move to cash as traders look for new opportunities created by recent chaos. 

Econ Data / Events

Jobless Claims

219k vs 225k f’cast, 225k prev

Continued Claims

1.903m vs 1.860m f’cast, 1.847m prev

ISM Services

50.8 vs 53.0 f’cast, 53.5 prev

ISM Employment

46.2 vs 53.9 prev

ISM Prices

60.9 vs 62.6 prev

Market Movement Recap

10:01 AM Weaker overnight with more selling early.  MBS down 3 ticks (.03) and 10yr up 6bps at 4.065

10:18 AM Additional losses on “tariff pause” headlines.  MBS down 3/8ths and 10yr up 14.4bps at 4.151

03:40 PM Back to weakest levels of the day after a modest bounce.  MBS down nearly 5/8ths and 10yr up 16bps at 4.165.

“Many people told Beethoven that he would never be a musician because he was deaf. Did he listen?” This week hundreds of mortgage bankers descend on Washington DC for the annual advocacy conference organized by our MBA, and they hope that those in Congress listen. The Consumer Finance Protection Bureau will certainly be a discussion topic. The CFPB being minimized leaves a vacuum which, it is believed, will fall back on the states. Another topic will be how applicable is the Community Reinvestment Act (CRA) for lenders that don’t accept deposits, like IMBs? Back in the lending trenches, LOs are focused on connecting with borrowers, especially previous borrowers where the servicing has been sold. Today on Now Next Later, join Sasha and Jeremy for 30 minutes as they chat with Skye Laudari, CEO of Crib Equity, about how the platform is helping mortgage companies connect with more homebuyers, particularly in high-cost areas like California. They’ll dive into how Crib Equity benefits first-time buyers and mortgage loan officers, offering a fresh approach to homeownership. (Today’s podcast can be found here and this week’s is sponsored by Figure. Figure is shaking up the lending world with its five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Lenders, give your borrowers an experience they will rave about. On today’s hear an interview with Polunsky Beitel Green’s Marty Green on tariff impacts as they pertain to the Fed’s decision making moving through 2025.)