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The bond market doesn’t look like it can catch a break as long as war persists in Iran. If it’s not oil, it’s fertilizer, nat gas, military spending, or a host of other inflationary knock-on effects that bode ill for the fixed income sector. Yes, the implied economic fallout would help offset the inflationary impulses, but not enough for rates to make downward progress just yet. Bonds will need to get past the point of pricing in another big inflation reckoning for that to happen. Until then, downward progress will be tough to sustain. This morning’s headlines (which involve more reports of mines in shipping channels and a Trump comment that said military objectives were more important than oil prices) have pushed the June Fed rate cut outlook to its worst levels in a year. 10yr yields are easily back up and over the 4.20% technical level. 

A near-record share of homeowners unable to sell their properties are renting them out instead, with “accidental landlords” accounting for 2.3% of listed rental stock in October, per Zillow data.

Agency MBS investors have had limited information about primary loans coexisting with home equity products, and may want to get more now, according to Experian.

Radian Group was looking to sell the aggregator, along with its title and real estate units, following a business model pivot related to the Inigo buy.

Residents in more than half of U.S. counties need greater than one-third of income to successfully manage major housing costs, according to new Attom research.

Some of the best mortgage companies to work for discuss how they incorporate community service in their plans and the resulting business and personnel benefits.

Mortgage rates moved higher on Wednesday despite only a modest increase in oil prices. The latter is currently a part of any conversation about interest rates as higher energy costs have fueled inflation expectations. Higher inflation begets higher rates, all else equal. But rates take other cues, or course. One key consideration is that of “supply.” In other words, how many new dollars of debt are being issued–not just by the U.S. government, but across the entire bond market.  At present, government issuance is high and only expected to get higher. Even though congressional approval is ultimately required, armed conflict can increase expectations for future military spending. There’s also uncertainty over tariff refunds which would further increase the supply of U.S. Treasuries to offset the lost revenue. Last but not least, this week brings scheduled Treasury auctions. The market knew about these ahead of time, but on some auction weeks, the results reveal an imbalance between buyers and sellers that increases momentum toward higher or lower interest rates. This week, that momentum has been generally higher. The net effect on mortgage rates is a conventional top-tier 30yr fixed that is back to February 4th levels on average. 

General Selling Spree Continues

It hasn’t exactly been perfectly linear, but the month of March has generally been a one-way trade for the bond market. In less than 2 weeks, 10yr yields are up from 3.95 to 4.22+ without any provocation from econ data. Today was another example as CPI came in right in line with forecasts. Despite that apparently decent news, yields rose steadily throughout the morning, and we can’t really blame oil prices today (even if higher energy costs are assumed to be very much on the bond market’s mind). Newswires the war costing $11bln last week also don’t help, especially on a day where bond traders are already thinking about Treasury supply due to the auction cycle. MBS sold off proportionally in the morning and underperformed in the afternoon, thus making for the highest 30yr rates in over a month and one of the biggest daily jumps we’ve seen in a while. 

Econ Data / Events

m/m CORE CPI (Feb)

0.2% vs 0.2% f’cast, 0.3% prev

m/m Headline CPI (Feb)

0.3% vs 0.3% f’cast, 0.2% prev

y/y CORE CPI (Feb)

2.5% vs 2.5% f’cast, 2.5% prev

y/y Headline CPI (Feb)

2.4% vs 2.4% f’cast, 2.4% prev

Market Movement Recap

08:41 AM Weaker overnight and no reaction to CPI. MBS roughly unchanged. 10yr yield up 2.5bps at 4.185

12:37 PM Weakest levels at noon ET and bouncing back a bit since then. 10yr up 4.5bps at 4.205. MBS 2 ticks (.06) off the lows, but still and eighth below rate sheet print times. 

04:28 PM weakest levels of the day. MBS down more than a quarter point and 10yr up 6.2bps at 4.22

There was a very high bar for today’s CPI to cause any serious market reaction due to all the new inflationary impulses that may be created by record volatility in energy markets that hasn’t yet made it into the official data. In other words, CPI is a time capsule for a bygone era and the market is already trading the implications on future inflation reports to the best of its ability using oil prices as a proxy. Before the data, 10yr yields were a few bps higher overnight and haven’t moved since the data. MBS are unchanged to a hair stronger after accounting for “the roll.” 
Rather than dissect the data that failed to move the market (it was fairly boring anyway as everything came in right in line with forecasts), we can take another look at the interesting impact of chart scaling. Specifically, we talked about how Treasuries broke up and away from the path suggested by oil prices yesterday. A full 3-day chart reiterates that assessment:

But if we zoom in to a 2-day chart (which chops off the super high oil prices on Monday), it’s much easier to see that oil and yields are still strongly correlated.