Bond traders anticipate that yields will remain elevated — and range bound — until there’s a lot more clarity on where the economy is heading.

Little Changed After Early Rally and Steady Selling

Monday ended up being a relative non-event for the bond market. Trading was almost perfectly flat overnight. Big trades moved the whole pile right at the open and then again about 2 hours later.  This effectively set the range for the rest of the day through the 3pm CME close.  Tariff headlines had zero impact on bonds overnight, despite a token, fleeting impact on forex.  

Market Movement Recap

10:17 AM Flat overnight and slightly stronger now.  MBS up 3 ticks (.09) and 10yr down 2.6bps at 4.466

12:59 PM 10yr down 0.2bps at 4.49, and MBS now back to unchanged. 

03:15 PM Treading water at weakest levels.  MBS unchanged and 10yr up half a bp at 4.497

Mortgage rates have been on a vacation from volatility since January 16th when they fell back toward 7% after hitting the highest levels since May 2024. Top tier 30yr fixed rates have operated inside a 0.13% range since then and a narrower 0.08% range for the past 2 weeks.  Today was technically a win, but it was fairly small (-0.02%). Any time our daily index is that close to the previous day, it’s safe to assume that most lenders are effectively unchanged. Rates are definitely still willing to react to major economic reports when results fall far from forecasts, but there were no such reports on tap today.  The same is true for tomorrow, but volatility is still a moderate risk due to Fed Chair Powell’s semi-annual congressional testimony. Then on Wednesday, volatility potential increases significantly with the release of the Consumer Price Index (CPI), which is the first of the two big inflation readings for any given month.  Inflation is always a consideration for interest rates, but it’s particularly important at the moment as investors wait for evidence that progress toward the 2% has resumed after potentially stalling at just over 3% last summer. While the annual inflation number will benefit in the coming months as the high inflation readings from early 2024 fall out of the calculation, those benefits wouldn’t show up in earnest until June.

Perhaps the most notable market-related headline over the weekend was Trump’s pre-announcement of 25% tariffs on steel and aluminum (in addition to existing tariffs). The comments were made on Sunday well before the market opened, and while there was an initial pop in forex markets at the open, it was almost immediately erased.  Bonds were completely unaffected and are trading in just slightly stronger territory to start the week. There were some big block trades right at the 8:20am open but even bigger trades in the other direction around 10:45am ET. 

There is no major econ data today and it wouldn’t be a surprise to see traders play it closer to the vest ahead of Wednesday’s CPI data.  Tomorrow’s Powell testimony is also possibly a wild card, but not on the same level of CPI in terms of volatility potential.

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