When the Iran war was in its initial escalation phase, the initial surge in markets took the top-tier 30yr fixed rate to 6.64% for the average lender by March 27th. Rates moved more than 0.30% lower by mid April as peace prospect improved.  The third phase of rate movement began in late April and has generally involved a jump back up toward 6.5% with the first 2 days of the present week accounting for a move from 6.42% to 6.56%. That matches the highest level seen since March 27th. Bonds yields (which underlie rates) have followed longer-term oil prices to their highest recent levels as Trump said the U.S. is not in a hurry to end the war.  [thirtyyearmortgagerates]

This morning’s Consumer Price Index (CPI) came in slightly hotter than expected with core inflation running 2.8% annual vs 2.7% forecasts and overall inflation at 3.8% vs 3.7%. Bonds have traded both ways after the data, but after 20 minutes, yields were actually LOWER by a hair. What gives? We know traders are trading the data based on volume. The stalemate could have to do with core goods (a proxy for tariff-related inflation) moving lower. The Fed has called this category out as a prerequisite for considering rate cuts again. The rest of the data was less friendly but housing played an outsized role. This is actually better for the rate outlook because traders think housing will ultimately trend lower over time. That said, the non-housing metric (supercore, .454% monthly and 3.32% annually) remains far too high for a rate cut discussion to be on the table for the foreseeable future.

Dream Finders Homes made its intentions public in an effort to push for shareholder approval following Beazer’s rejection of two prior offers.

Two other nonbank mortgage firms also recently got in position to raise capital while NVR, a builder and lender, added new authorization for share repurchases.

Prices rose 0.32% last month on a seasonally adjusted basis, equal to a 3.9% annualized rate, according to ICE Mortgage Technology’s mortgage monitor report.

Market watchers say that the economy as a whole is holding up under higher energy prices and do not expect a recession. Even so, observers are watching financial markets and consumer spending for signs that inflation expectations are taking hold.

Sales of previously owned US homes barely rose in April from a nine-month low, underscoring a sluggish housing market at the start of the spring-selling season.

Last week was decidedly stronger for mortgage rates as they either held steady or moved lower on 5 out of 5 days. All told, it was a 0.14% drop from the previous week in terms of the average top-tier 30yr fixed rate.  The new week is starting out in opposite fashion with rates moving up 0.07% today alone. This follows news over the weekend that Trump rejected Iran’s counterproposal to end the war. In general, the longer the war continues, the higher oil prices will remain.  Oil price don’t dictate rates, but there’s currently a lot of correlation due to inflation implications. Oil naturally impacts the cost to ship goods, so a rapid spike in oil prices increases inflation. Rates are based on bonds, and bonds hate inflation. In fact, inflation is technically a component of bond yields (aka “rates”). Despite the rocky start to the week, we’re not necessarily destined to move in one direction or the other. Everything depends on progress toward peace, or lack thereof. To a lesser extent, this week’s incoming economic data can also have an impact. Coincidentally, much of that data focuses on inflation for the month of April.

Over Before it Began

Monday proved to be a boring trading day despite the moderately big sell-off. Yields actually didn’t move much during the domestic session. In fact, they didn’t move during the overnight session either. Because the day’s market-moving news happened on Sunday before trading began, it was instantly priced in at the open, and the rest of the day was spent drifting sideways to slightly weaker. Bonds ultimately underperformed their prevailing correlation with oil prices. We’re not reading anything into this–especially in light of the Treasury auction cycle possibly adding some concessionary weakness. 

Econ Data / Events

Existing home sales (Apr)

4.02M vs 4.05M f’cast, 3.98M prev

Market Movement Recap

09:03 AM Weaker overnight after peace deal impasse. MBS down a quarter point and 10yr up 2.6bps at 4.381

12:58 PM weakest levels with 10yr up 4.6bps at 4.401 and MBS down almost 3/8ths

02:08 PM some support after hitting weakest levels. MBS down 11 ticks (.34) and 10yr up 4.8bps at 4.403

Bonds are starting the day moderately weaker. The reasons are straightforward. Chief among them, Trump rejected Iran’s counterproposal to end the war, calling it “totally unacceptable.” In response, Iran’s foreign minister said it will never bow to foreign pressure. Adding fuel to the fire, Netanyahu said the war was not over and there was “more work to be done.”  When trading began late Sunday night, oil prices were roughly 5bps higher and 10yr yields rose 4bps to roughly 4.40%. Despite those losses, trading levels for both oil prices and bond yields remain lower than they were before last week’s big rally on Wednesday morning.