Consolidation Continues Ahead of CPI February 19th through March 3rd marked an exceptionally directional rally for bonds. The following day brought the big blow-up in German debt, and the start of the consolidation in US rates. Granted, if domestic economic data been weaker, the rally may have tried to soldier on, but after the jobs report came out near consensus, that was that.  As has been the case for several years, the next major report after the jobs report is CPI, and CPI is arguably even more important at the moment.  This isn't to say we're guaranteed to see a big reaction--only that the potential is there, should the data come in much higher or lower than forecast.  As for today, it was just another in the ongoing consolidation with bonds determined to move back to the higher end of the recent sideways range after moving lower yesterday. Econ Data / Events Job Openings 7.74m vs 7.63m f'cast, 7.508m prev Job Quits (higher is worse for bonds) 3.266m vs 3.197m prev Market Movement Recap 09:39 AM Initially stronger early in the overnight session, then selling steadily.  MBS down just over an eighth of a point.  10yr up 2.2bps at 4.232 01:29 PM Weaker into the PM hours but leveling off now.  MBS down an eighth on the day and 10yr up 1.5bps at 4.227 02:26 PM 10yr yields are up 6.5bps at the highs of the day (4.276).  MBS down 10 ticks (.31)

With fiscal and geopolitical developments dominating the news cycle, it would be easy to forget that interest rates prefer to take their primary cues from economic data.  This is an important reminder considering tomorrow morning brings one of the most closely watched economic reports: the Consumer Price Index (CPI). CPI is one of only a few inflation reports from the U.S. government. It is also the out 2 weeks earlier than its only real competitor. Because of that, and the fact that rates are greatly impact by inflation, CPI is one of the biggest potential sources of rate volatility. There are certainly other economic reports that matter.  Even today's Job Openings data managed to cause small scale volatility this morning, but CPI is  far more capable.  As always, in order to have a truly big impact on rates, the data would need to come in much higher or lower than forecast, and there's no way to know where it will come in ahead of time (economists have already done their best to forecast that).  As for today, stock market fluctuations proved to be a bigger influence than the Job Openings data, ultimately pushing rates slightly higher compared to yesterday's latest levels.

Bonds were initially stronger at the start of overnight trading in Asia, but began selling off at a fairly steady clip almost immediately.  By the start of domestic trading, the weakness was minimal.  A stock sell-off helped bonds recover in the 10am hour, but when stocks bounced, so did bonds. Even then, we shouldn't expect yields and stocks to operate in constant lock step. In the bigger picture, bonds had rallied quite a bit up until the beginning of last week and they have been consolidating those gains ever since.  This consolidation range could be viewed as being as wide as 4.1-ish to 4.35-ish in terms of 10yr yields. We'll reserve worry or excitement for a break outside that range.

“Buying eggs on the street and weed in the stores: the times they are changing.” Borrowers are certainly reacting to changes in rates as capital markets staffs are dusting off their renegotiation policies, explain early payoff penalties, and strategize on margins in volatile times (all of which are discussed in today’s Capital Markets Wrap at 3PM ET, presented by Polly). Of course, the stock market isn’t the economy, which is a good thing because, as of Friday, Barron’s calculated a $3 trillion reduction in the value of U.S. stocks since Trump’s Jan. 20 inauguration. Originators hope that their clients aren’t tying their down payment funds to anything stock market-related, and worry that the mood of potential clients will deteriorate if the stock market keeps falling, which in turn would impact their enthusiasm for buying a home. (More in capital markets section.) Despite Fed Chair Powell’s comments, rate cut expectations have been pushed forward in recent weeks. As deterioration in the labor market builds, coupled with downside growth risks stemming from tariff and fiscal policies, markets are pricing in nearly three rate cuts this year, which is a significant increase from just one expected cut at this time last month. (Today’s podcast can be found here and this week’s is sponsored by TransUnion. TransUnion offers thousands of B2B solutions designed to address the unique needs of mortgage lenders, especially for their identity-focused, data-driven mortgage insights and solutions. Hear an interview with Mesa’s Maya Velasquez on how young people see the future of mortgage.)

More Help From Stocks, But More Reluctance From Bonds Up until just after 3pm ET, the stock market was on pace for its worst day of the recent selling spree in terms of day-over-day losses, but a rebound looks to be underway in the final hour of the NYSE session. The swan dive gave us another opportunity to observe the stock/bond dynamic whereby the correlation starts to increase when stocks are making bigger moves. In general though, it's taken more and more convincing for bonds to even begin to move back toward recent lows. Case in point, 10yr yields stayed well clear of last week's better levels and they weren't even willing to break the AM lows despite the 3pm swan dive in stocks. A combination of upcoming Treasury auctions and important econ data (Wednesday's CPI) is a good enough justification, but even last week, we were already talking about the bond rally being a bit overbought from a momentum standpoint. Market Movement Recap 10:01 AM Stronger overnight, mostly in European hours.  MBS up 6 ticks (.19) and 10yr down 7.4bps at 4.224 01:14 PM Perfectly unchanged from previous update. 03:13 PM Additional gains as stocks swoon.  MBS up nearly a quarter point.  10yr down nearly 9bps at 4.211 03:40 PM Stocks bounce back now and bond yields following.  10yr down 7.7bps at 4.22.  MBS up 7 ticks (.22).