TABLE OF CONTENTS
MARKET BRIEF 📰
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Rising energy costs in today’s Producer Price Index (PPI) sparked a bond apocalypse yesterday, ahead of today’s key inflation report (CPI).
Bonds were already on their heels Wednesday after Treasury Secretary Scott Bessent announced another $6 billion in long-term bond buybacks.
The program was intended to support the market, but the amount fell short of investor expectations and was interpreted as insufficient for the scale of the problem.
The double whammy of inflation and disappointment over government intervention sent bond prices plunging to levels not seen since the 2023 meltdown.
RATE IMPACT 💥
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Mortgage rate pricing was 76-bps higher on the day.
This means the same rate quoted Thursday morning now costs $761 more per $100K of loan amount.
Just six months ago, mortgage rates were at their best level in years.
Since the Iran invasion began, a dangerous cocktail of higher oil prices, shipping costs, and tit-for-tat tariffs has pushed rate pricing to the worst level in years.
The 429-bps increase since Feb 27 means securing the same rate now costs another $21,450 on a $500K loan.
GAME PLAN 📋
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When bond yields surge this quickly, the pressure spreads into other markets.
At these higher yields, the risks of owning stocks becomes less attractive relative the guaranteed income of owning government bonds.
In the short term, there is no arguing that yesterday’s bond sell-off is painful.
The question is whether it gets worse before it gets better.
The 30-year Treasury auction offered one reason not to abandon all hope.
Amid the hysteria, investors showed exceptionally strong demand for long-term government debt.
Primary dealers, the firms required to absorb whatever investors do not buy, were left with only 2.2% of the auction, the lowest share on record.
Also, Fed rate policy (hikes and cuts) usually follows the 2Y Note, which at this point all but guarantees a rate hike next week.
However, a higher Fed Funds Rate would not automatically make mortgage pricing worse. Markets have already priced in much of the expected move, and decisive action from the Fed could help calm inflation fears.
The question is, should you have locked ahead of today’s Consumer Price Index.
Locking probably feels like closing the barn doors after the horses have fled.
But it could still protect you if the barn burns to the ground today.
Personal timing is everything – not only for borrowers already under contract.
“You can always refinance later” remains a risky assumption.
But when bond prices become this stretched, a future refinancing opportunity becomes more plausible, even if it is never guaranteed.
The same logic matters when deciding whether to pay points.
Locking to hedge against today’s inflation data may be understandable; paying heavily for a lower rate is a separate decision.
The less money committed upfront, the more flexibility you retain if mortgage pricing eventually recovers.
Weeks like this require a cool head and a longer-term view.
The horses may eventually come home on their own – just make sure the doors remain open when they do.
Thanks for reading…
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