Today’s headline and core CPI readings were both perfectly in line with forecasts.  After the data came out, bonds rallied and Fed Funds Futures moved to price in a near certainty of a Fed rate cut next week.  To make matters more confusing, monthly core CPI was 0.31% before being rounded to 0.3%, so it’s not as if a low unrounded number explains the rally.  Instead, we have to turn toward housing inflation–the biggest problem child for this data series–and consider the substantial progress in this report and in general.

Owners’ Equivalent Rent (OER) is especially notable when we consider the broader context (along with the fact that it’s the single largest individual component of CPI).  If there is no other reason for this morning’s paradoxical move, it is the implication of the following chart.

Despite the initial gains, bonds have turned around and moved back in line with pre-data levels.  Blame Canada?  The Bank of Canada (BOC) released its latest policy statement this morning and despite a 50bp rate cut, the rest of the announcement was interpreted as hawkish by bond traders.  The spike in CA yields corresponds with the reversal in US rates, at the very least, but US traders may also be interested in preparing for this afternoon’s 10yr Treasury auction. 

“I love Christmas lights! They remind me of the people who voted for (insert name of politician). They all hang together, half of them don’t work, and the ones that do aren’t all that bright.” There are, however, bright people who read this Commentary. In response to yesterday’s opening about what your plan should be upon finding someone lurking behind your shower curtain, Karen F., the wife of a world-famous economist, wrote, saying, “You have now reclaimed the element of surprise and can meet your attacker face to face. It’s best to confront your intruder with some household object that can easily be weaponized.” Speaking of defending property, half of home sellers say they’d be more likely to use an agent on their next home sale if they didn’t have to pay the buyer’s portion of the commission fee. Funny, because 47 percent of sellers think their home would have sold for more money if they’d used an agent. In the end, 80 percent of sellers who did not use an agent have regrets about their home sale, and 54 percent wish they had used a real estate agent. (Today’s podcast can be found here and this week’s podcasts are sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industry. Save 20 percent all week with the code “Chrisman.” Hear an interview with Xactus’ Shelley Leonard on what lenders should be thinking about in 2025 to push the edge of innovation and advance the modern mortgage.) Lender and Broker Software, Services, and Products

But the Federal Housing Administration program was the only mortgage loan type to gain market share month-to-month as measured by rate lock percentage.

A slower rate of price increases would boost the likelihood of an interest-rate cut that could expand loan demand and lower banks’ deposit costs. A higher pace of inflation, however, could derail those catalysts.

A New York Times report suggests the majority of the NAR affiliate’s grants to right-leaning organizations are out-of-line with its housing-related mission.

Mat Ishbia urged brokers to understand how the increases in credit score and report costs affect both them and the borrowers they serve.

A new question field on the Consumer Financial Protection Bureau’s consumer complaint form is tied to an advisory opinion on customer service related to customers’ requests for information, industry experts say.

Ready For Anything After Pre-CPI Consolidation

Bonds were arguably consolidating ahead of last Friday’s jobs report with the reaction representing a bit of a bullish breakout.  Since then, there’s been a quick and obvious re-consolidation back in line with last week’s M-Th levels. Today added to that process with most of the selling taking place by the start of the US trading session. Perhaps some of the selling has been an attempt to make room for this week’s Treasury auctions, but there’s no question that Wednesday morning’s CPI data is the last significant piece of the puzzle that the Fed will receive before deciding “to cut or not to cut” next week.  The market knows this, of course.  As such, a big deviation from forecasts would definitely be enough to get things moving.

Market Movement Recap

09:13 AM Modest weakness overnight. MBS down 5 ticks (.16) and 10yr up 2.7bps at 4.225.

12:50 PM MBS sideways, still down 5 ticks (.16). 10yr up 4bps at 4.239.

03:23 PM Some strength in PM hours.  MBS down 2 ticks (.06) and 10yr up 2.4bps at 4.223

Continued reductions by the Federal Reserve in short-term interest rates should benefit mortgage volume, and thus title insurance activity, Fitch Ratings said.

An interest rate drop spurred an unusually high number of recently originated mortgages to prepay, and one loan type proved to be particularly reactive.