This is Matt Graham with the MBS Live Market Update. Last week enjoyed a slightly stronger start for the bond market with gains being made all the way through Wednesday afternoon. In general, the focus was going to be on Friday’s CPI data, so that left traders with the question about what to do between Monday and Friday at the beginning of the week. We can talk a little bit about oil prices. It’s not the best correlation to focus on when it comes to bonds, and there are certainly times where oil prices and bond yields are not moving in the same direction. But there has been some conversation recently about the drop in oil prices from mid-October through late October, actually early October through late October, and hitting lower levels under $60 a barrel. In conjunction with last week’s lowest bond yields. Oil prices moved higher starting on Wednesday. Some might say that applied some pressure to the bond market, but zooming in closely on the minute to minute correlation shows that there really wasn’t much of a correlation there. Nonetheless, it can be a broader stroke for the macro economy that ends up having some inflationary implications for bonds. In terms of actual scheduled data and events, we were again, very limited, but we did get the Philly Fed Non-Manufacturing Index on Tuesday morning, and that arguably helped bonds a little bit. It’s not the kind of report we would normally focus on, but with the government shutdown keeping most reports on hold, some off the beaten path reports are getting more attention. Then on Wednesday morning, the bond market looked keen to embark upon what many thought. We would see this week ahead of CPI, which is a simple circling of the wagons, a consolidation, a correction, as traders got into position for more potentially volatile data. But the 20 year bond auction at 1:00 PM helped bonds gain ground and delayed that correction impulse until Thursday. And true to form Thursday, saw moderate selling. Definitely the most aggressive selling of the week. And that was fairly palatable considering we were moving up from very low yield levels. So when we haven’t been below 4% for so long and we’re selling off to levels that leave us just a hair above 4%, it’s not really that big of a deal that brought us to Friday CPI Data. As you may have heard, it came out slightly lower than expected, both at the core and headline level, and that garnered an immediate positive reaction in the bond market. But that reaction didn’t last too long. In fact, the buyers were done buying as soon as 8:40 AM 10 minutes after the data and had sold off to the weakest levels of the day by 9:45 AM and that may have something to do with super core CPI. In fact, super core comes from the PCE data, something we won’t get this month, but there are ways to extrapolate it from the CPI data, and that sometimes takes the market a few more minutes to digest because it’s not a published index in and of itself. And it is basically core services minus rent inflation and owner’s equivalent rent inflation. This does a few things for traders. First off, it strips out, big component of inflation that can be very trendy. Specifically owners equivalent rent and rent inflation tend to move in a fairly directional manner once they get going, and that’s not generally as revealing when it comes to month inflation metrics. Incidentally housing inflation or housing payment inflation. Fell fairly nicely, but that’s not where the Fed is looking to determine whether or not its mandates are still in tension. They’re also not looking at tariff inflation too much because for now they expect that to subside. And super core suggests that all of the other stuff that isn’t tariff driven and isn’t housing driven is still staying pretty sticky, and that could certainly be a reason that the bond market backed up. On Friday. It could also be a circling of the wagons ahead of this week’s key events, which is the Fed announcement and the accelerated treasury auction schedule. We already know the Fed will be cutting rates for sure, so the focus is on fed chair Powell’s press conference, which again could be either hawkish or dovish, although markets think it would probably be less hawkish than the last go round. So with anticipation for the Fed announcement and the accelerated treasury auction cycle, we’ve seen a little bit of weakness so far this morning, but bonds are effectively unchanged as they go about yet another week. That is very light in actual econ data. That’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.