Good Morning on this best day of the week from your Hometown Lender,
Yesterday saw some reprices worse as bonds gave back early gains, mainly due to volatility and a rally in stocks when Commerce Secretary Howard Lutnick made comments about how President Trump may roll back some of the tariffs on Canada and Mexico.
His exact comments were:
“Both the Mexicans and the Canadians were on the phone with me all day today trying to show that they’ll do better, and the president’s listening, because you know he’s very, very fair and very reasonable. So I think he’s going to work something out with them — it’s not going to be a pause, none of that pause stuff, but I think he’s going to figure out: you do more and I’ll meet you in the middle some way and we’re going to probably be announcing that tomorrow.”
That was enough to help traders desperate for any port in a storm to find some optimism, and caused some unexpected moves in bonds yesterday resulting in some reprices worse.
Rate sheets today are taking cues from yesterday and are a bit worse again.
Volatility on the day is high as the market is still looking for a footing not knowing where tariffs will land. President Trump reiterated last night at a joint session of congress (which had similar theatrics to his Oval Office meeting with Zelensky) that tariffs are necessary and will be good for the economy. In addition to the tariff conundrum, we had some important data today. This morning’s ADP private payroll report came in at just 77k and was the smallest gain in new private jobs since July, however the ISM data beat expectations which could be inflationary.
President Trump’s address to Congress last night was the longest address to a joint session ever, at an hour and 40 minutes.
Shortly after President Trump enacted new tariffs yesterday, Canada and China responded with retaliatory measures, escalating tensions with two of the United States’ three largest trading partners. With tariffs now imposed on Canada and Mexico and additional hikes targeting China, markets have begun assessing the likely countermeasures. Despite earlier market pricing for potential tariffs, the extent of the bond rally has been notable, with some benchmarks dipping below levels seen at the start of Trump’s presidency. While inflation concerns remain, investors are increasingly viewing them as short-term risks within the broader threat of a global slowdown.
Domestically…
The economic strain on businesses, earnings, and employment could mount quickly, potentially dampening demand. If weaker demand offsets initial price increases and job losses become a factor, bond markets could see renewed support as investors seek safer assets. Friday’s jobs report although too early in this cycle to be relevant, will none the less be seen as a foretelling of things to come.
Despite bond yields falling as of late, the yield curve has remained relatively stable, with the 2s/10s spread holding within a tight range of 20- to 25-basis points, though technical signals suggest a potential breakout. Meanwhile, 2-year yields have fallen below 4.0 percent, reflecting growing market confidence in the Fed’s potential for easing policy, even as uncertainty remains over the extent and timing of rate cuts. Current market pricing suggests between two and three 25-basis points rate cuts in 2025, aligning with the Fed’s prior guidance, though this could shift further if economic conditions deteriorate.
The new tariffs could increase builder costs anywhere from $7,500 to $10,000 per home, said Rob Dietz, chief economist at the National Association of Home Builders, citing estimates from U.S. homebuilders. Last year the NAHB estimated that every $1,000 increase in the median price of a new home prices out roughly 106,000 potential buyers.
That was a mouthful today. Lots of balls in the air.
Stay safe and make today great!