Great news for bonds on the inflation front this morning: Core annual inflation came in at 2.6% compared to a 3.0% forecast and 3.0% last time.  It’s the lowest reading of the cycle and the first attempt to break below the stagnant sideways/elevated levels that have prevented more aggressive Fed rate cuts. Despite those facts, the bond market is only rallying moderately (but certainly rallying). Traders could be skeptical about the thoroughness of post-shutdown data collection, or this could foreshadow year-end bearish biases. Whatever the case, the data itself was better for bonds than anyone could have hoped for (and better than any economist predicted).  NOTE: there is no month-over-month data due to the non-existence of October CPI.

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A federal appeals court agreed to have the full bench rehear arguments by the Consumer Financial Protection Bureau’s union about whether the Trump administration planned to gut the agency through mass firings.

The Treasury official renewed a pledge to avoid hurting how mortgages trade in a Fox Business News interview as a new study highlighted one way to do that.

The deal significantly grows United Wholesale Mortgage’s servicing portfolio, and it will increase the float on its common stock, making it more investable.

Mortgage activity fell 3.8% from one week prior for the week ending Dec. 12, led by a 4% drop in refinance applications, the Mortgage Bankers Association said.

The bill’s signing comes weeks after one of the most notorious NTRAP providers agreed to legal settlements in two states, nullifying existing contracts.

Mortgage rates were perfectly unchanged compared to yesterday’s levels for the average lender. This wasn’t a huge surprise considering the absence of any high stakes economic data, but tomorrow could be a different story. Rates are driven by bonds and the economy is one of the primary sources of motivation for the bond market. In general, the two reports that get more of the bond market’s attention than any others are the jobs report and the Consumer Price Index (CPI).  The jobs report obviously pertains to the labor market. This is the report that came out yesterday and although it didn’t cause a big move in rates, bond volume was nonetheless at its highest levels since the last jobs report on November 20th.  CPI pertains to inflation. Recent Fed speeches have expressed slightly more concern over inflation’s impact on the rate outlook.  Longer term rates (like mortgages) also take cues from inflation. If CPI is higher than expected, it tends to put upward pressure on rates and vice versa. This will be the first CPI report since the government shutdown (the last report came out on 10/24/25) which makes it all the more likely that rates will react to any major departure from expectations.

Slightly More Focus Than Normal on Thursday’s CPI

Wednesday ended up being an uneventful trading day with bonds mostly sideways and well within the recent trading range. This isn’t hard to believe given the absence of any relevant market movers. Thursday could be different thanks to the Consumer Price Index (CPI). This is one of those reports that has occasionally swung for the fences, but that can also have almost no impact. The present example could receive a bit more focus than normal as it will be the first time we’ve seen this data since October 24th. In addition, recent Fed speeches have reintroduced inflation concerns as a reason to be patient when it comes to additional rate cuts. None of this guarantees fireworks, but at the very least, it’s the last potential source of fireworks this year as far as econ data is concerned. 

Market Movement Recap

08:37 AM Modestly weaker overnight. MBS down 3 ticks (.09) and 10yr up 2.6bps at 4.167

10:42 AM Back near unchanged levels. MBS unchanged and 10yr up only 0.3 bps at 4.144

02:39 PM Bouncing back a bit. MBS down 1 tick (.03) and 10yr up 0.7bps at 4.148

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