The average top tier 30yr fixed rate held exceptionally steady last week after moving just a bit lower over the weekend. By comparison, today’s rates are much closer to Friday’s latest levels and still very close to the lowest we’ve seen since October, 2024.  If the two key economic considerations for interest rates are jobs and inflation, the two key economic reports are the jobs report seen earlier this month and the Consumer Price Index which comes out tomorrow morning. It’s often repeated that the PCE Price Index is a preferable gauge of inflation, but CPI comes out 2 weeks earlier and thus gets most of the market’s attention. Just like last month, market participants are watching to see the extent of tariff-driven inflation in tomorrow’s data.  If it contributes to a higher-than-expected result, we’ll likely see some upward pressure on rates.   Notably, traders are already expecting an increase over last month, so it won’t be “news” to interest rates if inflation is merely higher (the expectation is baked-in to current levels).  Bottom line, volatility potential is higher tomorrow morning due to the inflation data and there’s no way to know if it will help or hurt until the market is already reacting. 

Bonds Mostly Steady Ahead of CPI

Treasuries outperformed MBS just slightly today, but both were close enough to unchanged to argue against any excess analytical effort. In general, bonds took their last major cue from the jobs report earlier in the month and have been mostly sideways since then. That brings us to Tuesday morning’s CPI which is the only true top tier data of the week and the only report that can occasionally hold a candle to the jobs report in terms of volatility potential.  As with last month, the headline numbers don’t necessarily tell the story. Traders will quickly be looking to sort out tariff-impacted categories from the rest of the data.

Market Movement Recap

09:32 AM Sideways to slightly stronger overnight.  MBS unchanged and 10yr down 0.6bps at 4.276

12:25 PM strongest levels in 10yr, down 2.1bps at 4.261.  MBS unchanged.

02:17 PM bouncing back a bit now.  MBS down 1 tick (0.03) and 10yr down 1bp at 4.272

July represents the core of the summertime lull in financial markets.  June and August are typically part of the lull unless econ data is suggesting an imminent shift in Fed policy.  This is so well understood that back in May 2013, Kevin Brady famously asked Ben Bernanke if QE tapering could start before Labor Day. It was an odd question to anyone who didn’t understand just how tuned out politicians and market participants can be during these months. Data-free Monday mornings during these months aren’t necessarily forbidden from showing some volatility, but a flat trajectory is the least surprising thing to see at the start of the week. Yields have been orbiting 4.34% in an increasingly narrow range.  This is good perspective considering the last 2 jobs reports seemed like “big deals” relatively, but actually fit inside this consolidation pattern.

Tomorrow could be a different story due to the CPI release–one of the only economic reports that can overcome the sideways summertime momentum.

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Mortgage rates finally moved in a slightly more noticeable direction today, but the change was still inconsequential in the bigger picture. The average 30yr fixed rate in our index edged up a mere 2 hundredths of a percent from 6.55% to 6.57%, exactly matching the levels seen on August 6th. This leaves rates in the same low range they’ve occupied all week. This week’s stability follows last Friday’s jobs report, which pushed bond yields—and by extension, rates—sharply lower. Since then, daily market movements have been too small to force meaningful lender changes. Even with today’s tiny bump, top tier scenarios remain in the mid-6% range. Next week brings far greater potential for movement. Tuesday’s Consumer Price Index will provide a critical update on inflation and may shed more light on how recent tariff changes are impacting prices. Several Federal Reserve officials are also scheduled to speak, offering an opportunity to gauge whether last week’s weaker jobs data has shifted their willingness to cut rates. Between these two factors, the calm we’ve seen this week could give way to a much more volatile landscape in the days ahead.

Focus Shifts to Next Week’s High Stakes CPI

Bonds lost ground at the fastest pace of the week on Friday, but even that ended up being insignificant in the bigger picture. The bottom line is that this week’s trading helped solidify and consolidate the gains seen after last week’s jobs report. With nothing of note on tap today, focus quickly shifted to the risks/opportunities inherent in next Tuesday’s CPI report–one of two key players when it comes to determining the next big move for rates (the other being the next jobs report in early September). Higher inflation would suggest bonds erase more of their post-NFP gains whereas lower inflation would argue for another challenge to the 10yr technical floor at 4.20%. 

Econ Data / Events

Jobless Claims

226k vs 221k f’cast, 219k prev

Continuing Claims

1974k vs 1950k f’cast, 1936k prev

Market Movement Recap

10:11 AM Losing ground fairly steadily this morning.  MBS down an eighth and 10yr up 2bps at 4.275

01:01 PM Flat after initial selling.  MBS down 3 ticks (.09) and 10yr up 2.9bps at 4.284

03:24 PM Treasuries heading out at weakest levels with 10yr up 3.1bps at 4.286.  MBS still steady with a 3 tick (.09) loss.