Full Reversal And Then Some

Bonds more than made up from Tuesday’s rout with a massive rally on Wednesday. Unlike Tuesday’s move, which was driven by bond-market-specific selling pressure on the part of one account’s massive liquidations, Wednesday’s rally was broad-based and driven by war-related headlines. Specifically, newswires suggested the U.S. and Iran are now very close to agreeing on a plan to end the war. The market isn’t just hearing “wolf!” It’s pretty sure it’s seeing an actual wolf on the horizon. This is important and ongoing proof of concept regarding the prospect of additional improvement in the event speculation becomes reality. Conversely, it’s also a reminder that things can change quickly if the peace narrative deteriorates in coming days.

Market Movement Recap

08:49 AM moderately stronger overnight. MBS up an eighth and 10yr down 2.1bps at 4.646

10:27 AM gaining some ground on Pakistan headlines (potential final draft of peace terms tomorrow). 10yr down 3.7bps at 4.629 and MBS up just over a quarter point.

01:18 PM Near best levels. MBS up 3/8ths and 10yr down 8.8bps at 4.58

02:53 PM MBS up 5/8ths and 10yr down 10bps at 4.567

Tuesday’s massive wave of bond-specific weakness still has the analytical community scratching its collective head. Our contacts are either saying nothing or telling us they’re just as perplexed. So far this morning, there hasn’t been any sort of repeat performance.  Lower oil prices have helped bonds find their footing, but the move has relied on breaking news regarding the potential for the final text of the peace agreement to be drafted by tomorrow.

On the calendar front, the 2pm FOMC Minutes release is the only thing that seems like it might be relevant, but as a reminder, this is just a more detailed account of the meeting that took place 3 weeks ago, and we’ve heard plenty of Fed speakers clarify their outlook over those 3 weeks. 

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Economic uncertainty and higher rates in April contributed to the first decline in applications for new homes on an annual basis since October.

The delay preserves a lifeline for competing bidder United Wholesale Mortgage, which previously reached an agreement to acquire the servicer last year.

Inflation and a possible Fed move impacting rates are concerns that product innovation and housing policy can help with, leaders said at an industry meeting.

It was another rough day for the bond market and, thus, for interest rates. Investors aggressively sold bonds in the first 2 hours of trading, taking 10yr Treasury yields to the highest level in more than a year. Mortgage-specific bonds have been doing better versus Treasuries in recent months thanks to increased purchase demand from Fannie Mae and Freddie Mac. All else equal, higher demand for mortgage bonds = lower rates, relatively. In the current case, it means mortgage rates haven’t moved up as much as Treasury yields over the past 6 months. That said, rates have still definitely moved higher. Today’s top tier 30yr fixed rate is up to 6.75% for the average lender–the highest since July 2025, and a whopping 0.75% higher since before the Iran war began. This makes it the fastest rate spike seen since late 2024. [thirtyyearmortgagerates]

Whales Making Waves in Treasury Futures

Nerd alert: there’s no way to discuss what happened in the bond market today without getting a bit nerdy. Reason being, there was an absolute deluge of block trades in Treasury futures (over $20bln–the biggest day we can remember for outright block trades). There are a few different possibilities for how this went down, but the size, structure, and timing of those trades suggests that only one or two massive players were involved. The saving grace of a move like this is that it means there was not broad-based selling pressure from a majority of the market. And although this could be viewed as “thought leadership” that inspires other sellers, those sellers had a chance to jump on the bandwagon today and instead held their ground. 

Econ Data / Events

ADP Employment Change Weekly

42.25K vs — f’cast, 33.0K prev

Market Movement Recap

09:04 AM Gradually weaker overnight with no standout market movers. MBS down almost 3/8ths and 10yr up 4bs at 4.63

11:24 AM MBS down 5/8ths and 10yr up 8.6bps at 4.675

02:46 PM Recovering a bit. MBS down just over half a point and 10yr up 7.2bps at 4.662

Ever since the initial 2 week ceasefire was announced in the Iran war, the bond market has adhered to trend channels that align with either de-escalation or re-escalation sentiment. Nothing too complicated here: if sentiment is trending in favor of peace, bonds have rallied. If sentiment is deteriorating, bonds have sold off. There was a temporary diversion as traders waited to see if last week’s China summit would be a catalyst for a shift. When the summit failed to deliver, yields jumped back in line with the re-escalation trend. Now this morning, they’re already challenging the bearish boundary of that trend WITHOUT any new justification from an oil price spike, stock market rout, or any new news on the war. In other words, bonds are telling politicians to get serious about ending the war or face increasingly dire consequences.