Last Thursday, mortgage rates merely had to hold steady in order to hit 1-month lows.  In other words, Wednesday’s rates were low enough to earn that distinction, but it technically hadn’t been a full month since rates were decisively lower.   All that to say, not much has changed since last week when it comes to mortgage rates, but with today’s levels being just microscopically better than last week’s, we’re technically at 1-month lows yet again.   The underlying market movement was calm and boring today.  That is increasingly likely to change in the coming days due to incredibly important economic data on each of the next two mornings. In other words, whereas it was safer to expect small changes and sideways momentum over the past 5-6 days, it would be a surprise to see things stay flat by Wednesday.   The only catch is that no one knows which direction rates will move when they (probably) have something other than a flat, boring day in the next two days.

What You See Today Won’t Necessarily Be What You See Tomorrow

With essentially nothing on the event calendar to start the new week, it was fair to expect a continuation of the same sideways drift that characterized last week.  It’s not the future can ever be predicted when it comes to markets, but we can say the flat trajectory is the least surprising outcome for Monday.  That same trajectory will be increasingly surprising over the next 2 days, with a special focus on Wednesday (CPI day).  Even Tuesday deserves some respect with the Producer Price Index and a moderated discussion from a European banking conference with Fed Chair Powell. Today’s Fed-speak wasn’t worth any volatility, but the NY Fed’s consumer survey showed an uptick in inflation expectations and made for a modest intraday bump at 11am ET. 

Market Movement Recap

10:01 AM Sideways to slightly stronger overnight. Additional modest gains early.  10yr down 2.8bps at 4.47.  MBS up 5 ticks (.16).

01:14 PM Small pop toward weaker levels after Fed inflation survey, but back toward better levels now with 10yr down 2.4bps to 4.474.  MBS up 5 ticks (.16).

03:18 PM Weakest levels of the afternoon.  MBS still up 2 ticks (.06) but down nearly an eighth from the highs.  10yr still down 1.1bps, but at the highs of the day, 4.487.

04:22 PM Off the weakest levels.  MBS up 3 ticks (.09) and 10yr yield down 1.2bps at 4.486

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In 2023 and especially 2024, the first bullet point in the bond market’s job description is to focus on Core CPI above all other economic reports.  In fact, it’s not uncommon for a big CPI reaction to set the tone with traders largely waiting for the next CPI before making the next big move.  In February and March, negative reactions to CPI set the high end of the prevailing yield range.  That might have happened again in April if not for the additional bump from the extra strong Retail Sales data a few days later, and Powell’s hawkish pivot a day later.  Even so, the April 10th CPI stands out as the biggest recent market mover, by far.  There’s no reason to doubt a repeat performance is in the cards if the results come in very much outside the consensus.  Monday is quiet on the data front.  Things get progressively more serious after that with Tuesday’s PPI being an opening act for Wednesday’s CPI.

Higher Inflation Expectations Keep Yields Range-Bound

It’s not as if bond yields stood any real chance of breaking outside the week’s prevailing range based on today’s starting point, but by losing a modest amount of ground, they ended up staying even closer to the 4.50% psychological level ahead of next week’s big CPI revelation.  Today’s driver was the Consumer Sentiment data.  While the headline was weak (which would be good for bonds, all other things being equal), the inflation expectation component got the market’s attention, pushing yields higher and stocks lower after 10am.  The selling was brief and the afternoon was on cruise control at modestly weaker levels.

Econ Data / Events

Consumer Sentiment

67.4 vs 76.0 f’cast, 77.2 prev

1yr inflation expectations

3.5 vs 3.2 prev

5yr inflation expectations

3.1 vs 3.0 prev

Market Movement Recap

10:24 AM Moderately weaker overnight and no help from sentiment data.  MBS down 5 ticks (.16) and 10yr up 4.1bps at 4.497

11:25 AM A bit of additional weakness as MBS get caught up with TSY losses.  10yr still up just over 4bps at 4.498, but MBS now down 7 ticks (.23).

03:44 PM Losses cooled down by 1pm. Sideways and stable since then.  MBS down 6 ticks (.19) and 10yr up 4.7bps at 4.503

The following should be prefaced with the reminder that it is impossible to predict the future with much precision when it comes to bond market movement.  That said, there are times when certain outcomes are far less surprising than others on any given day or week.  For the current week, that base case involved a flat trajectory with lower volatility than the previous week, and that’s exactly what we’ve seen.  This is also an entirely reasonable outcome given the extreme absence of economic data and other big ticket market movers.

In general, you should be skeptical any time someone says a future week will be more volatile. There’s really no way to know such things in advance, but this time is an exception. While we can’t have any idea which  direction rates will move next week, we can be sure that we’ll see more volatility.  Part of the reason is that the outgoing week would have been hard pressed to be any less volatile.  For rates, it was largely an aimless drift apart from two offsetting reactions to calendar events on Thursday and Friday (highlighted below). Thursday’s sharper drop in bond yields followed a higher reading in the weekly Jobless Claims data.  This was one of the only economic reports that came out this week.  It showed an abnormally large change that resulted in the highest reading since August 2023.  While this could prove to be an outlier, it got the market’s attention in the morning. Thursday afternoon saw relatively strong at the scheduled auction of 30yr Treasury bonds.  In general, strong auctions put downward pressure on yields/rates, all other things being equal.  The present example was worth roughly the same amount of improvement as the Jobless Claims data. While the bond market was already pushing back in the other direction on Friday morning, the Consumer Sentiment data kept things moving in the same unfriendly direction.  This was not the usual case of stronger economic data pushing rates higher.  In fact, headline consumer sentiment was much lower than expected.

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Bonds Boosted by Data and Well-Received Auction

Jobless Claims data doesn’t normally move the market, but it did this morning, even if only by a bit.  It was enough to turn modest losses into modest gains ahead of the afternoon’s 30yr bond auction.  Here too, hopes were not high for a big reaction.  After all, there was no real reaction to yesterday’s 10yr auction.  But things were different this time as traders bid more aggressively for the longer duration.  With that, we had two modest-but-noticeable rallies that left trading levels right in line with this week’s range after starting out at the highest yields of the week.

Econ Data / Events

Jobless Claims

231k vs 210k f’cast, 209k prev

Market Movement Recap

08:31 AM Modestly weaker overnight, but back into the green after claims data.  MBS unchanged.  10yr down 1bp at 4.487

12:17 PM Steady near stronger levels.  MBS up 3 ticks (.09) and 10yr down 1.2bps at 4.486

01:04 PM Best levels of the day after 30yr bond auction.  10yr down 2.4bps at 4.472.  MBS up an eighth.

04:32 PM Sideways and strong into the close.  MBS up just over an eighth and 10yd down 3.9bps at 4.458.

The most prevalently quoted conventional 30yr fixed rates are at the lowest levels in a month as of today, but there are a few “yeah buts” that make that achievement look a bit less lofty.  The first is that the rates seen on any day this week would have qualified for the same distinction if they’d remained intact today.  Reason being: there was a big rate spike last month on April 10.  On a related note, today’s rates weren’t appreciably lower than those seen on Tuesday. Still… lower is lower and we’ll take it! Today’s improvement wasn’t guaranteed.  It required some sacrifices in the economic data with Jobless Claims coming in higher than expected.  Then in the afternoon, the scheduled auction of 30yr US Treasury Bonds was met with solid demand.  Both events helped put downward pressure on rates with many lenders ultimately issuing mid day reprices with better terms. All of the above has played out in a very narrow range in the bigger picture.  The big spike on April 10th was in a completely different league and it was exclusively a response to the Consumer Price Index (CPI).  With that in mind, the next CPI will be released next Wednesday.  It has just as much power to cause just as big of a move as it did last time, for better or worse.