Good Friday AM, from your Hometown Lender,

I am glad it is Friday.

This has been a rough week in the market. One of the roughest I can remember since well, the first Trump administration. Shaking things up is great and will be great for the US. I am just hoping we don’t have to break everything in the process.

Rate sheets today will be worse than yesterday as bonds continue to sell off.

Reprices are likely today, as when we see moves this big it often turns a snowball into an avalanche. We will see better rates again, but it comes down to a matter of “when” and “how bad will it get before we do?” The question becomes, do we see rates move up a quarter and down a half, or up a half and down a quarter? See what I mean?

Here’s why rates will improve eventually…

At some point, people stop choosing ideals over their own best interests. Don’t mistake what is going on… this is a global game of cat-and-mouse. Right now, the two biggest players are the US and China, however everyone is watching and waiting, from Australia to Zimbabwe. Some have boycotted us, including our Treasuries, but don’t expect that to last for long. Despite the chatter of how the dollar won’t be the world currency forever, or how Treasuries are not the world’s safe haven they once were, countries NEED us, and it is hurting them to try and hurt us. Eventually things will return to “normal” (or a lot closer to what normal was), although that may still take a while. During that time, we can expect to see more pain before we get relief, even as it comes to mortgage rates.

Rates will have to improve again sometime in the future when the repercussions from this trade war play out. The economic slowdown will help bring rates down, even if we do see some inflation. But this might be weeks or even months away, not days.

Some great commentary on rates from the MBA…

Market volatility, both in equity and bond markets, increased sharply this week because of the serial surprises with respect to the direction of U.S. tariff policy. Mortgage markets are impacted in numerous ways by this volatility. The most direct impact observed is from the widening in the spread between mortgage and Treasury rates, a mechanical result of this increase in volatility, as it directly increases prepayment risk, a risk for which investors want to be compensated.

The news surrounding U.S. tariffs and an escalating global trade war continues to upend financial markets. Between the potential impacts of the announced tariffs and the “on again, off again” nature of their implementation, markets continue to react or overreact one way or another each time the news changes.

A week ago, the 10-year Treasury yield decreased to 3.9% but jumped to as high as 4.5% on Wednesday and again today. The increase in the ICE-BAML MOVE (Merrill Lynch Option Volatility Estimate) Index movement over the past week captures these recent swings, as shown by the orange segment in the chart above which represents the daily values for April, in contrast to the prior monthly averages of the MOVE index in blue. Spikes in the index signify increased volatility.

With wider swings in rates, a larger chunk of mortgages moves in and out of the money to refinance each day. When rates hit their low point, refi speeds could jump, and when they swing to the high end of the range, the spigot turns off, and extension risk becomes the concern. Investors in agency MBS are primarily focused on prepayment risk, as these securities have minimal credit risk.  Increases in this risk can widen the spread between mortgage and Treasuries.

Based on data from the Optimal Blue Daily Market Briefing, the spread between the 30-year fixed rate mortgage rate and the 10-year blew out to almost 250 basis points this week, as represented by the yellow line segment in the chart. The spread has averaged roughly 230 basis points for the past six months. The 30-year fixed mortgage rate reached 6.83% this week, a 22-basis point increase over a 7-day period. In addition to the 10-year level, it is also critical to watch this spread. This increase in volatility has not been good news for the mortgage market.

Consumer Sentiment Tanks in April on Recession Fears

Consumer sentiment in the U.S. plunged further this month on trade uncertainty, with the share of Americans expecting unemployment to rise in the year ahead increasing to the highest since 2009.

A closely watched index of consumer sentiment nosedived to 50.8 in April from 57 last month, continuing a recent downward trend stoked by concerns about trade, jobs and inflation.

The preliminary reading, from a survey by the University of Michigan, was much weaker than the 54.6 that economists polled by The Wall Street Journal expected.

It is one of the weakest readings in the past decade.

Consumers’ expectations for inflation in the year ahead surged to 6.7%. It was the highest reading since 1981.

“Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month,” survey director Joanne Hsu said.

Friday’s survey is the first major read on consumer sentiment since President Trump’s April 2 “Liberation Day” announcement of sweeping tariffs, which triggered a steep market selloff. The survey period ended April 8, the day before Trump announced a 90-day pause on some tariffs.

Stay safe, enjoy the weekend and Passover, and first, make today great!!