In early April, amid the most volatile portion of the market’s reaction to the tariff announcement, mortgage rates were officially over 7% for a single day. By the middle of the following week, they were well on their way lower, ultimately ending the month just over 6.8%. Since then, it’s been tough sledding for bonds and the rate market. Almost every day in the month of May has been a bad one.  Even if the size of the rate increases have been reasonably small, they’re starting to add up.  Now today, the average lender is back on the doorstep of 7% for top tier conventional 30yr fixed mortgage rates.  A second wave of weakness in the bond market this afternoon is resulting in many lenders announcing mid-day increases.  With that, today’s index ended up at 6.99%–all this despite an absence of any standout individual motivations in today’s news. Tomorrow brings a slew of important economic reports.  If they come in stronger than expected, rates could face additional upward pressure.  If they’re weaker, markets may dismiss them as stale data that was overly influenced by tariff-related uncertainty that has since improved. 

Another “Just Because” Sell Off

This is getting old…  and unfortunately, more prevalent. The bond market has been offering up more and more examples of reasonably brisk changes in yields without any obvious catalysts. This forces market watchers to concoct narratives to fit the price action (i.e. to say things that wouldn’t be said if the mystery move was a rally). In other words, guesses and generalizations are the name of the game. What we do know is that a broad rotation out of bonds and into stocks is underway, even if stocks weren’t a good example of that today. We know there were some headlines regarding potential Korea/Japan trade deals in the works. And we know the bond market isn’t thrilled with the potential Treasury issuance implications associated with congressional budget headlines. All that having been said, the reality is probably significantly more complicated and boring than this small collection of usual suspects. 

Market Movement Recap

10:06 AM Modestly weaker overnight and a bit weaker so far.  MBS down almost an eighth and 10yr up 2bps at 4.49

12:29 PM More weakness.  MBS down just over a quarter point and 10yr up 5bps at 4.519

02:26 PM Flat at weakest levels.  MBS down 9 ticks (.28) and 10yr up 5.3bps at 4.522

03:11 PM Weaker at the 3pm CME close.  MBS down 11 ticks (.34) and 10yr up 6.5bps at 4.534

It’s a potentially frustrating time for bond watchers. The rules have already changed in a big way to accommodate the new wild card presented by tariff policy, and it seems like there have been far more “fine tuning” tweaks to those rules than normal. Bonds will always move based on a combination of factors. Some are obvious and basic.
Others are exceptionally esoteric. Over the past few weeks, we’ve seen a return of a more basic pattern with a measurable de-escalation in the trade war helping stocks and hurting bonds (yes, there was a moment in April where escalation also hurt bonds, but that’s one of those esoteric examples that no longer applies). For the moment, the stock lever (the ultra basic, conventional wisdom notion of buying/selling bonds and doing the opposite with stocks) has been reasonably consistent.

It is not incorrect to view this as a loose barometer of market optimism/fear regarding trade policy.  Data can and will still matter, but as seen with yesterday’s CPI, some of the data will be taken with a grain of salt until we have a better sense of finalized trade policy and the global market’s reaction.  Also, one should not assume that the correlation in the chart is some sort of reliable rule–especially over short time horizons.  
As for today, it is largely a placeholder in terms of data. Tomorrow is the active day of the week. 

The increase in purchase mortgage rate lock volume provides support for those looking for a strong Spring market this year, Optimal Blue found.

Some policies the industry group is calling for the Office of Management and Budget to definitively rescind have already been pulled back to some degree.

Numbers jumped after the expiration of a moratorium at the end of 2024, but rates of foreclosure rose across all loan types, the Mortgage Bankers Association said.

The company is positioning its Tinman platform as a serious industry competitor and suggests it’s eying product costs of around $1,500 per loan.

Lower is acquiring a top-five ranked real estate portal to create an “end-to-end homeownership platform” to rival Rocket Mortgage.

Bonds End Almost Perfectly Flat

There are two kinds of rate/bond watchers today: those who tuned in late in the day to see bonds  almost perfectly unchanged and those who were tuned in through the mild volatility this morning.  The former group would simply shrug and go back to whatever it was they were doing while the latter might be frustrated to see bonds losing ground on a morning where inflation came in lower than expected. For the frustrated crowd, this was the plan for today–the asymmetric risk discussed yesterday.  A decent result was never likely to help bonds.  The subsequent weakness was driven by other factors, not CPI (risk-on trading and a series of tariff headlines from China).  Even then, unchanged is unchanged. 

Econ Data / Events

Monthly Core CPI

0.237 vs 0.3 f’cast, 0.1 prev

Annual Core CPI

2.8 vs 2.8 f’cast, 2.8 prev

Market Movement Recap

08:48 AM MBS up about an eighth and 10yr down 2.4bps at 4.446

09:58 AM Losing ground in the NYSE session.  10yr up 0.4bps at 4.474.  MBS back to unchanged.

12:09 PM New lows.  MBS down 3 ticks (.09) and 10yr up 2.4bps at 4.492

04:49 PM Decent late bounce.  10yr roughly unchanged at 4.47.  MBS down 1 tick (.03) 

Heading into the session, we knew there was a high bar for CPI to have a positive influence on bonds with the future tariff landscape reducing the relevance of current price data, but the results were close enough to consensus that we might not have seen a big reaction anyway. Core CPI rose to 0.237 month over month, versus a 0.3 forecast. Annually, it was 2.8 vs 2.8 and unchanged from last month. Volume spiked modestly and bonds rallied for a few seconds before returning to flat levels. The meaningful movement has taken place after the 9:30am NYSE open with a classic risk-on trade. Friendly tariff headlines from China added to the case just after 10am.