Good Morning on this Friday,

I am ready to put this week in the rearview mirror.

Bonds were under pressure after last Friday’s jobs report and the selling accelerated this week. The 10-yr is up to 3.73% today from 3.40% a week ago. Mortgage bonds are off about 100bps this week. It felt that the bond market was settling down yesterday by noon but then Mexico unexpectedly raised their bank rate by .50%. That spooked markets a bit, which reminded everyone that higher rates are on the horizon. Bonds accelerated their selling on the news. First reading on consumer confidence came in a little stronger than expected this AM but that is a mid-tier data set so not having much to do with today’s trading. 

Next week brings the Jan CPI reading. I would expect inflation to tick downward but with the recent data, I am not assured of it. That will be the next driver for mortgage rates.

How higher rates impact other markets than housing is an interesting data point.

The Treasury’s spending on interest on the debt is up 41% to $198 billion in the first four months of this fiscal year compared with $140 billion in the same period last year, according to a Congressional Budget Office estimate of spending through January. The cost is rising as a result of the Federal Reserve’s broader efforts to fight inflation and cool the economy by rapidly lifting its benchmark interest rate. Higher interest expense and higher debt service will reduce GDP and put additional pressure on the economy. At some point, moderation is needed. Think about how this increase in debt service compounds the budget deficit and how the US is teetering on a new budget agreement.

Please remain safe and stay healthy, enjoy the weekend and make today great!