Today brought the release of one of the most consequential economic reports that comes out on any given month: the Consumer Price Index (CPI).  CPI measures inflation and inflation is a big deal for interest rates.  Higher inflation means higher rates and vice versa.  That correlation held true today with CPI coming in higher than expected and mortgage rates moving higher, but the details are more nuanced. The last time CPI came out (February 13), the most important line item (core month over month CPI) was at the same level as today’s report.  The impact on 30yr mortgage rates at the time was a big jump of 0.17% for the average lender.  Today’s increase was only 0.05%, and it didn’t even bring rates up to levels seen BEFORE last month’s big jump. That all adds up to a very nice silver lining for an otherwise downbeat day.  It suggests the market is starting to see more convincing signs that inflation and the economy stand a better chance deliver rate-friendly news in the near future as opposed to news that would cause a big resurgence. But why was today’s outcome so much better?  There were some mitigating factors in today’s CPI that weren’t present last time.  Most importantly, the largest and most stubborn component of that core month over month number managed to drop back into its prevailing range (last month’s reading represented a spike to the highest level in nearly a year–something that caused investors to worry about new upward momentum in inflation).

“I heard that 80 percent of car accidents occur within one mile of a person’s residence, so I moved.” But it turns out that moving doesn’t improve your driving, although it does improve lender’s volumes. Home Bay just published a survey that found 75 percent were happy with their decision to move. But 86 percent of Americans who moved in 2023 have regrets about moving, up from 75 percent in 2022. With many movers charging by size and weight, 24 percent of Americans wish they downsized their belongings before moving. Other common regrets include missing their old home (24 percent) and that moving was too expensive (20 percent). What’s more, nearly half (46 percent) of Americans shed tears and 42 percent fought with their loved ones during the moving process. The top reasons for moving in 2023 were to improve their quality of life (31 percent) and upsize their home (21 percent). If money were no object, the states Americans most want to move to are California (32 percent), New York (29 percent), and Florida (24 percent). However, migration data from Allied Van Lines shows more affordable states such as Montana, Vermont, Arkansas, and Idaho have the highest percentage of inbound moves. (Found here, this week’s podcast is sponsored by Lender Toolkit. With Lender Toolkit’s AI-powered AI Underwriter and Prism borrower income automation tools, you’ll be able to get loans approved in under two minutes. Hear an interview with Lender Price’s Dawar Alimi on specific ways that lenders are benefiting from seamless integrations.)

It’s been a weird morning so far with core CPI coming in at 0.4 vs 0.3 forecast–something that should have certainly sent bonds scrambling into weaker territory–only for bonds to rally after a few brief moments of selling.  This paradoxical result could have only been due to a few “yeah buts” in the underlying data.  Likely suspects include the drop in the closely watched shelter component (0.4 vs 0.6 previously), an even bigger drop in the even more stubborn medical services, and the simple fact that the 0.4% core reading was rounded from 0.358, so we were very close to a 0.3 reading after rounding.
If we had to pick one, it would be the main driver of shelter inflation: owner’s equivalent rent (OER), which spiked disconcertingly to 0.6 last month.  This made it look like a calming trend was at risk of being derailed while today’s data suggests last month may have been a one-off.

But let’s not spend too much time explaining the positive bounce back considering it’s already been erased.  Perhaps this is just traders trading it out or the market moving on from reacting to CPI and focusing instead on building in a concession for today’s 10yr Treasury auction. 

Either way, things could have been a lot worse if the composition of the data was less promising. 

While some said the agency was ignorant of its own rules, one trade group praised the goals of the posting.

The Mortgage Bankers Association would like Fannie Mae to move toward the fee-based structure Freddie is testing.

Regardless of the effect housing prices have on ballot decisions, almost two-thirds of respondents indicate that current economic trends left them feeling negative about the economy, Redfin said.

Loan officers and branch managers have started transitioning to competitors such as Union Home Mortgage, CrossCountry Mortgage and The Money Store.

The head of the U.S. Department of Housing and Urban Development under the Biden Administration said she will transition from public life starting March 22.

Mortgage rates hit their best levels in more than a month by the end of last week after moving lower for 4 straight days.  If you could only know one thing about today, it’s that although rates didn’t extend their winning streak, they are still very close to Friday’s levels–close enough that the typical borrower wouldn’t care or notice.     Today is old news, however.  Tomorrow is where all the excitement is.   Tomorrow (Tuesday) brings the regular monthly installment of the Consumer Price Index (CPI) data.  There are more than 50 scheduled economic reports on any given month that might have an impact on rates, but only two that are on another level of market movement potential.  CPI is both of them. Well, CPI is at least one of them, but the other one (the big jobs report that came out last Friday) didn’t exercise its right to cause big drama for rates.  Thus, all eyes are on CPI tomorrow.  If it comes in much higher or lower than expected, rates will likely react in a major way. How major?  That really depends on the data.  Using the range of outcomes in the past few years, a bad result could push rates higher by a quarter point while a good result could have an equally large benefit.  All that having been said, reality tends to fall somewhere in between, but there’s no doubt the POTENTIAL is there for something bigger.

Super High Potential Energy Surrounding Tuesday’s Data

Monday proved to be the quintessential placeholder trading day that it was probably always destined to be.  Bonds lost a modest amount of ground early, regained most of it, and then lost it again by the close.  All told, it was only a few bps in terms of 10yr yields and thus not worth writing home about.  Trading levels have obviously leveled off in a sideways holding pattern ahead of Tuesday’s CPI.  On that note, it would be difficult to overstate the potential energy for bonds waiting on the other side of 8:30am ET.  Granted, there’s always a chance that the needle is threaded and little movement ensues, but there’s also a chance that it’s the most dramatic day for bonds in months, for better or worse.  

Market Movement Recap

09:28 AM Sideways to slightly weaker in uneventful trading.  MBS down an eighth.  10yr up half a bp at 4.081

12:14 PM Weaker into the 11am hour, but recovering now.  MBS down 6 ticks (.19) and 10yr up 2.3bps at 4.10

03:05 PM Slightly stronger after 1pm TSY auction, but weaker into 3pm close.  10yr up 2.3bps at 4.10.  MBS down 5 ticks (.16)