Good Monday AM from your Hometown Lender,

How does it go? ‘Man plans and the heavens smile?’

We planned on a tariff deal (or pause) helping to settle the bond market. We got the news; we didn’t get the result… Equities are killing it today at the expense of bonds. Rates are worse than Friday, as the initial reaction to a temporary trade deal with China pressures mortgage bonds.

Once again showing the occasional futility of forecasting how markets will react to data or events, bonds are down this morning and the 10-yr Treasury yield has jumped from Friday’s 4.38 to this morning’s 4.46 after news of a temporary deal with China to lower tariffs. The expectation was that if we saw any kind of deal from the weekend’s talks, it could help push the 10-yr Treasury yield lower (which would be good for rates).

The original thought was that because a deal would ease inflation worries and calm markets, more investors would feel safe buying bonds (which drives yields down). However, instead markets are now pricing in the idea that the economy won’t tank and that there will be no recession, and the Fed is much less likely to cut rates this year. They are wrong and this is a kneejerk reaction. Chances of a June Fed rate cut a month ago were at almost 65%. Now? Less than 10%. This is the initial reaction, with traders not yet giving much thought to reduced risk of inflation. That may change more tomorrow when we get the CPI inflation data though.

Keep fingers (and now, toes), crossed.

Stay safe and make today great!