Slightly More Focus Than Normal on Thursday's CPI
Wednesday ended up being an uneventful trading day with bonds mostly sideways and well within the recent trading range. This isn't hard to believe given the absence of any relevant market movers. Thursday could be different thanks to the Consumer Price Index (CPI). This is one of those reports that has occasionally swung for the fences, but that can also have almost no impact. The present example could receive a bit more focus than normal as it will be the first time we've seen this data since October 24th. In addition, recent Fed speeches have reintroduced inflation concerns as a reason to be patient when it comes to additional rate cuts. None of this guarantees fireworks, but at the very least, it's the last potential source of fireworks this year as far as econ data is concerned.
Market Movement Recap
08:37 AM Modestly weaker overnight. MBS down 3 ticks (.09) and 10yr up 2.6bps at 4.167
10:42 AM Back near unchanged levels. MBS unchanged and 10yr up only 0.3 bps at 4.144
02:39 PM Bouncing back a bit. MBS down 1 tick (.03) and 10yr up 0.7bps at 4.148
Mortgage rates were perfectly unchanged compared to yesterday's levels for the average lender. This wasn't a huge surprise considering the absence of any high stakes economic data, but tomorrow could be a different story. Rates are driven by bonds and the economy is one of the primary sources of motivation for the bond market. In general, the two reports that get more of the bond market's attention than any others are the jobs report and the Consumer Price Index (CPI). The jobs report obviously pertains to the labor market. This is the report that came out yesterday and although it didn't cause a big move in rates, bond volume was nonetheless at its highest levels since the last jobs report on November 20th. CPI pertains to inflation. Recent Fed speeches have expressed slightly more concern over inflation's impact on the rate outlook. Longer term rates (like mortgages) also take cues from inflation. If CPI is higher than expected, it tends to put upward pressure on rates and vice versa. This will be the first CPI report since the government shutdown (the last report came out on 10/24/25) which makes it all the more likely that rates will react to any major departure from expectations.
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Wednesday is largely a placeholder as 2025's relevant trading days evaporate. Apart from the year-end influences on the 29th-31st, Thursday's CPI arguably represents the last opportunity to trade big ticket econ data until the early January jobs report. CPI has stepped in to fill the shoes that yesterday's jobs report was apparently unable to fill. Specifically, it will round out the first half of the Fed's next round of rate cut deliberations in late January. As a placeholder, today's trading is meaningless if yields remain under 4.20 and above 4.10. With a modest morning recovery bringing yields to 4.10.
Unemployment Not High Enough For a Full-Fledged Rally
If the only metric from this morning's jobs report was the uptick in unemployment from 4.4 to 4.6%, and if that was the last of this week's big ticket econ data, it wouldn't be a surprise to see a more aggressive rate rally. As it stands, unemployment was tempered by a higher participation rate and less dire unrounded numbers (taken together, these actually made unemployment closer to unchanged). Add in stronger payroll growth, a surge in core retail sales, and the need to wait and see how Thursday's CPI comes out, and the choppy, lackluster rally is easier to reconcile.
Econ Data / Events
ADP Weekly Employment
16.25k vs 4.75k prev
Non Farm Payrolls (Oct)
-105 vs -- f'cast, 119K prev
Non Farm Payrolls (Nov)
64K vs 50K f'cast, -- prev
Participation Rate (Nov)
62.5% vs -- f'cast, 62.4% prev
Retail Sales (Oct)
0.0% vs 0.1% f'cast, 0.2% prev
Retail Sales Control Group MoM (Oct)
0.8% vs 0.4% f'cast, -0.1% prev
Unemployment rate mm (Nov)
4.6% vs 4.4% f'cast, 4.4% prev
Market Movement Recap
08:36 AM Modestly stronger after jobs report. MBS up almost an eighth and 10yr down 1.1bps at 4.165
09:27 AM Paradoxically modestly weaker now with MBS unchanged and 10yr up 1.3bps at 4.191
12:56 PM Back near best levels of the day. MBS up 5 ticks (.16) and 10yr down 2.1bps at 4.156
02:28 PM Leveling off at only modestly stronger levels. MBS up an eighth and 10yr still down 2.1 ticks at 4.156
Watching Rates
Check our some recent articles and posts about current rates.
Mortgage rates were perfectly unchanged compared to yesterday's levels for the average lender. This wasn't a huge surprise considering the absence of any high stakes economic data, but tomorrow could be a different story. Rates are driven by bonds and the economy is one of the primary sources of motivation for the bond market. In general, the two reports that get more of the bond market's attention than any others are the jobs report and the Consumer Price Index (CPI). The jobs report obviously pertains to the labor market. This is the report that came out yesterday and although it didn't cause a big move in rates, bond volume was nonetheless at its highest levels since the last jobs report on November 20th. CPI pertains to inflation. Recent Fed speeches have expressed slightly more concern over inflation's impact on the rate outlook. Longer term rates (like mortgages) also take cues from inflation. If CPI is higher than expected, it tends to put upward pressure on rates and vice versa. This will be the first CPI report since the government shutdown (the last report came out on 10/24/25) which makes it all the more likely that rates will react to any major departure from expectations.
There was a decent chance that rates would have made a fairly big move today in response to the release of November's jobs report. This is the most important economic data as far as rates are concerned and today's was the first full release since before the government shutdown. In general, weaker employment data promotes lower rates and vice versa. While today's jobs report was weaker on balance, it wasn't weak enough to unequivocally shift the narrative of a labor market that is merely cooling in a gradual and manageable way. The average lender moved back down to levels that were close to those seen last Thursday. In the bigger picture, rates are in a consolidation pattern inside the same relatively narrow range seen since early September. Volatility remains a risk as the week progresses. If there's one additional report the market may be waiting to see before trading today's jobs report more aggressively, it's this Thursday's Consumer Price Index (CPI). This is the heaviest hitting monthly inflation report and inflation is the other half of the Fed's rate-setting equation.
Mortgage rates were just slightly lower to start the new week. This leaves the average lender's top tier 30yr fixed rate almost dead center in the narrow range that's been intact since early September. The absence of any significant movement on Monday is a logical outcome given the absence of any major economic data releases or headlines. But Tuesday could be a different story. At 8:30am ET, the Bureau of Labor Statistics (BLS) will release the first jobs report with data collected after the government shutdown. This report normally would have come out on December 5th, but by the time the government reopened on Nov 13th, BLS had missed much of its normal data collection/processing window. The jobs report (officially, The Employment Situation) is the single most important piece of economic data as far as interest rates are concerned. It includes 2 key metrics: a count of new nonfarm payroll (NFP) creation as well as an update on the unemployment rate. Both are important, but the unemployment rate has recently taken precedence over NFP. If unemployment comes in lower than expected, rates would likely face upward pressure, potentially challenging the upper boundary of the recent range. On the other hand, a weaker/higher result should keep rates well within the range, perhaps near the lower boundary. [thirtyyearmortgagerates]
Friday saw mortgage rates move back up near the highest levels of the week, and thus the highest levels of the past 3 months. Thus ends another week where mortgage rates end higher despite a Fed rate cut. We've beaten this horse to death, but here are the two key reasons Fed rate cuts don't necessarily result in lower mortgage rates, in as few words as possible:
Different Kinds of Rates
Fed Funds Rate = loans of 24 hours or less.
Mortgage rates = loans up to 30 years.
Rates can have vastly different behavior when they apply to loans of vastly different time frames
Vastly different levels of timeliness
Fed only meets to consider rate cuts 8 times a year whereas mortgage rates move daily.
As such, mortgage rates can get in position well in advance of the Fed actually cutting.
All told, this week's Fed announcement had only a small, temporary impact on financial markets, and it was completely reversed on Friday. In contrast, the upcoming week actually has significant new market movers. These include Retail Sales for October, CPI inflation data for November, and the much-anticipated November jobs report (as well as half of the October jobs report). Unlike the Fed rate cut, markets can't accurately predict how these reports will come out. If they're mostly stronger than expected, rates will break up and out of their recent range. If the reports are weaker, rates should retreat back down into that same range.
