Good Tuesday AM from your Hometown Lender,

Rate sheets will be better today on some weak data and a change in market sentiment.

When President Trump was elected, markets were first worried about the inflation and pushed the 10-yr note up to 4.80%, now the lens is that growth has slowed, jobs are being cut, retail spending has tanked, we will spend less on helping other nations, etc. Additionally, Treasury Secretary Scott Bessent said he would not expand the issuance of the 10-yr note. The 10-yr note is not only a staple for bond investors but many hedge funds are required to keep a position in their portfolios.

Back to high school economics for the moment…

If the US is not selling more 10-yr notes and demand increases as it does, prices will go up and push rates down. We are already seeing the 10-yr yield drop, now at 4.31% and the best levels of the year. With slowing growth, the equity markets are already feeling a pinch. Reprice risk on the day is low, market sentiment is firmly moving money into bonds, and traders are now pricing in two (or more) Fed rate cuts this year after losing optimism previously.

Markets are not feeling so excited about the Trump administration now, and the concerns are helping push mortgage rates back lower. Could we see improvement all week heading into the PCE inflation data on Friday, and could that data even help this rally continue?

Anna Wong of Bloomberg Economics estimates that DOGE delivering $100 billion of cuts would be enough to push down the consumer price index by 0.2 percentage point. A more-aggressive $600 billion in cuts would equate to 0.8 point. In either scenario, the Federal Reserve will then need to cut more than otherwise, she reckons. “Underestimating Elon = underpricing rate cuts in 2026,” says Anna.

Stay safe and make today, great!!!