This morning’s PCE inflation data was in line with expectations with the annual core PCE price index coming in at 2.8% and the monthly core coming in at 0.2%.  The initial reaction was weaker, possibly because the 0.2% monthly number is not low enough to suggest a quick return to the 2.0% annual target. As traders digested the data, the unrounded numbers were a bit friendlier, prompting a reversal back toward stronger levels. Comments from Fed’s Goolsbee helped as well. The initial selling pressure and subsequent bounce back leave bonds at unchanged levels heading into the PM hours. Potential tariff announcements could cause an additional move in either direction depending on timing and details. The start date is now said to be March 1st instead of Feb 1st.

For all of the news that seems to be highly likely to cause volatility for rates, the market reaction ended up playing out on a very small scale. The biggest day of movement was Monday, with rates opening moderately lower versus the previous week after the big AI-driven stock sell-off pushed some investors into the bond market (when traders buy more bonds, rates move lower, all other things being equal). The second half of the week featured a Fed announcement and multiple headlines surrounding big, new tariffs on Mexico, Canada, and China. To be fair, the bond market definitely reacted to those headlines, and some mortgage lenders ended up being forced to raise rates a bit on Friday afternoon.  But in the bigger picture, the volatility is a non-event so far. It will take months, if not years to fully analyze the impact from whatever tariffs are ultimately implemented. 2019, which saw rates move lower despite a trade war with China, may or may not prove to be a relevant precedent. Either way, it’s a reminder that tariffs don’t necessarily have one obvious implication for rates, even if the market reacts that way at first.  Either way, this round of tariffs is still up in the air in terms of particulars.  Based on potential legal challenges and likely exemptions, markets won’t jump too far to conclusions until details are known and the data is showing the impacts.

Reasonably Reserved Reaction to Tariff Headlines

If you were just watching headlines and making note of MBS Live alerts, it may have seemed like today’s tariff news was a big deal for rates. And while tariffs definitely hit harder than this morning’s PCE data, bonds are nonetheless heading out the door with only modest losses on the day, no losses for the month, and solid gains on the week.  Today’s video discusses the inherent uncertainties surrounding tariffs, not only with respect to legal implementation, but also the precedent of market impacts (focusing on the 2019 trade war). Granted, things could certainly be different this time, but we won’t really know for sure any time soon.

Econ Data / Events

Core PCE, MM

0.2 vs 0.2 f’cast, 0.1 prev
Unrounded 0.16

Core PCE, YY

2.8 vs 2.8 f’cast, 2.8 prev

Employment Cost Index

0.9 vs 0.9 f’cast, 0.8 prev

Market Movement Recap

08:42 AM Flat overnight and initially weaker after data, but stabilizing now.  MBS down 2 ticks (.06) and 10yr up 1.3bps at 4.531.  Possibly some influence from Fed’s Bowman comments on Monetary Policy not exerting pressure on economy. 

01:14 PM MBS now back to unchanged.  10yr up only half a bp at 4.52

02:07 PM Back to weakest levels after tariff announcement.  MBS down 3 ticks (.09) and 10yr up 2.3bps at 4.539

02:57 PM Additional selling. MBS down 7 ticks (.22) and 10yr up 5.1bps at 4.566

04:58 PM Off the weakest levels heading into the close.  MBS down only and eighth and 10yr up only 2.8bps at 4.543

Beeline’s product division, dubbed Beeline Labs, will be rolling out an AI-powered quality control product for mortgage lenders.

Vista Equity Partners put funds into the regulatory technology firm, which Asurity Technologies has partnered with since 2015.

The financial services unit also made a categorization change that revised comparisons to prior periods and will be working with its REIT affiliate in new ways.

Russell Vought, should he be confirmed by the full Senate, would join a short list of those able to lead the CFPB, as his predecessor Mick Mulvaney did, per the requirements of the Vacancies Act.

The Long Island-based company, which is in the middle of a makeover, saw its stock price rise sharply after reporting a net loss that was less than what analysts expected.

Interest rates are driven by the bond market and bonds are at their best levels in over a month. As such, it’s no surprise that mortgage rates are able to make a similar claim.  In fact, we’d need to go back to December 20th to see a lower average rate for top tier 30yr fixed mortgages. The catch is that today’s rate is so close to yesterday’s that many borrowers may see no difference at all. In turn, yesterday’s rates were also effectively unchanged from the previous 2 days. In other words, it’s been a very flat week and today just happens to be microscopically better than the rest. Markets did a respectable job of digesting this morning’s economic data, which put some upward pressure on bond yields and, thus, implied upward pressure on mortgage rates. Tomorrow’s data brings another opportunity for some volatility. The PCE price index is one of the two main inflation reports that comes out each month. If it’s much higher or lower than expected, rates could react accordingly (with higher inflation implying higher rates and vice versa).

Solid Showing In Spite of Data and Uncertainty

The relevance of economic data increased this morning with the release of Q4 GDP and Jobless Claims.  Neither were good for rates although neither were especially bad. Right after the data, the overnight rally gave way to moderate selling pressure and, ultimately, a return to unchanged levels for MBS in the 11am hour. After that, volatility was minimal despite lingering uncertainty on the tariff implementation that was originally slated for February 1st. 

Econ Data / Events

GDP Q4

2.3 vs 2.6 f’cast, 3.1 prev

PCE prices

2.5 vs 2.5 f’cast

Jobless Claims

207k vs 220k f’cast, 223k prev

Market Movement Recap

08:41 AM Slightly weaker after data but still in positive territory.  MBS up 2 ticks (.06) and 10yr down 2.7bps at 4.513

01:27 PM Steady weakness after data, but flat since 11am.  MBS unchanged and 10yr down 1.8bps at 4.522

04:34 PM Some volatility surrounding fabricated headlines on Trump tariffs. MBS unchanged and 10yr down 1.7bps at 4.523