Absence Makes the Bonds Grow Stronger

Bonds improved at a moderate pace for the 2nd day in a row, thus marking the first sustained push back against the recent rate spike.  The gains are notable because they are not being driven by any big, new developments on the trade/tariff front. Instead, it is the absence of any such developments that is allowing the market to get back into a relatively calmer groove.  That said, we wouldn’t take the calm for granted.  Bonds have merely moved back to more nimble territory as we wait for more policy clarity.

Econ Data / Events

Import Prices

-0.1 vs 0.0 f’cast, 0.2 prev

Export Prices

0.0 vs 0.0 f’cast, 0.1 prev

NY Fed Manufacturing

-8.1 vs -14.5 f’cast, -20.0 prev

Market Movement Recap

10:16 AM Choppy, sideways, but slightly stronger overnight.  MBS up 3 ticks (.09) and 10yr down about half a bp at 4.367

01:04 PM Gains continue.  MBS up a quarter point and 10yr down 5.5bps at 4.32

03:13 PM Down an eighth from the best levels of the day, but still up 5 ticks (.16). 10yr down 4bps at 4.333, but up a few bps from best levels. 

04:34 PM Avoiding further weakness this afternoon.  MBS up 5 ticks (.16) and 10yr down 4.4bps at 4.33

In the context of the past two weeks, the past two days have been an anomaly. Not only have bond yields been moving lower, but they’ve done so in relatively lower volatility and without the same sort of high-impact headlines seen with last week’s 90 day tariff pause. The market is moving into a more uncertain, inquisitive position now that we’re through the initial barrage of tariff-related volatility.  What will the final numbers be? What countries will be involved? What will “deals” look like? What will be exempted? And lastly, what will the international response be to all of the above?  Short of a rapid re-acceleration of tariff drama, we’re in “wait and see” mode with a focus on the questions outlined above.

While not directly correlated to bond market movement, currency valuation has been a good proxy for the global market response to April 2nd and the subsequent updates.  In the chart below, lower = weaker for the dollar.

Bessent reiterated his interpretation of the decline being mainly a product of deleveraging, saying he had no evidence that sovereigns were behind the drop.

The Buffalo, New York-based bank also said Monday that the commercial real estate lending market has started showing signs of life, but that the renewed competition is crimping its loan growth.

Omeed Malik, who runs a merchant bank and a hedge fund, is a Republican donor and works with Republican-linked businessmen including Donald Trump Jr.

Federal Reserve Board member Christopher Waller said he would not be deterred from classifying inflation as “transitory” despite the board’s recent experience underestimating inflationary pressures.

The re-engineering of the convertible note arrangement between the two parties includes a one-time cash payment of $110 million by Better.

Bonds Build on Overnight Gains After Another Tariff Change

It was a low drama session for bonds with overnight gains managing to remain intact during the AM hours and additional improvement in the PM hours. There wasn’t any glaringly obvious individual market mover during domestic hours, although some would say comments from Fed’s Waller certainly didn’t hurt. Rather, we saw consistent, moderate, generalized buying demand as traders need not price in as much panic as last week if the tariff outlook is becoming progressively less onerous. Whether this is a brief reprieve remains to be seen.  And we may have to wait a bit longer to sort that out considering there are only 2.5 more days left to trade this week due to the holiday calendar. 

Econ Data / Events

NY Fed Inflation Expectations

1yr : 3.6 vs 3.1 prev
3yr: 3.0 vs 3.0 prev

Market Movement Recap

09:41 AM Stronger overnight on electronic tariff exemptions.  MBS up half a point and 10yr down 9.2bps at 4.058

11:04 AM Modest additional gains after NY Fed inflation data.  MBS up 13 ticks (.41).  10yr down 10bps at 4.05

01:20 PM Best levels of the day in Treasuries.  10yr down 11.7bps at 4.033.  MBS up 12 ticks (3/8ths). 

03:26 PM Just a bit stronger.  MBS up just over 5/8ths and 10yr down 11.8bps at 4.373

Friday afternoon’s memorandum on tariff exclusions set the stage for stronger trading in stocks and bonds in the overnight session. Bonds rallied steadily in Asia/Europe and have continued to improve in early domestic trading. Data is nearly non-existent today, with only the relatively obscure NY Fed Consumer Survey on tap at 11am ET. Several Fed speakers will be making the rounds shortly thereafter, but two of the four speeches occur after market hours. Moreover, most Fed speakers have been singing similar tunes recently (tariffs could cause more inflation than previously thought, policy is well-positioned to respond, no rush to change until uncertainty is cleared up).

“Why don’t you tell rumors in a Botox Clinic? Nobody raises an eyebrow.” Who can keep track of the rumors out there, like a combo of a well-known real estate search engine and a company that exited wholesale a few years ago? (Totally unsubstantiated, unlike the actual Luminate/NJ Lenders news below!) Who can keep track of thousands of products from hundreds of countries to tax them? In yet another change, smartphones, computers, and other electronics are exempt from Trump’s reciprocal tariffs, for now. It’s difficult hedging a mortgage pipeline; try being a purchasing manager for a car maker! Or a homebuyer or builder: Canada and Mexico, respectively, are important sources of softwood lumber and gypsum (used in drywall). China is an important source of steel and aluminum, as well as a supplier of home appliances and other products used in residential construction. Many of the raw materials and goods sourced from China are already subject to tariffs. It is important to note that Canada, Mexico, and China are the United States’ three largest trading partners. Economists at the National Association of Home Builders (NAHB) project that the proposed new tariffs on Mexico and Canada, along with the recently imposed tariffs on China, could raise the cost of imported construction materials by more than $3 billion. (Today’s podcast can be found here and this week’s are sponsored by BeSmartee, transforming mortgage lending with Bright Connect, its native mobile app designed to boost loan officer productivity, speed up referrals, and simplify the borrower experience. Hear an interview with TrustEngine’s Dave Savage on the evolution of the industry since he entered more than three decades ago, how he’s driven to make an impact, and more tidbits from one of the most recognizable names in mortgage that you won’t want to miss.)