Bond markets pull back after recent developments
Positive developments with China
We’re seeing bond markets pull back after stronger-than-expected Chinese manufacturing PMI data and increased optimism that a Trump/China trade deal will be inked soon. China is looking to extend its suspension of retaliatory tariffs on US cars and include the opioid fentanyl on its list of controlled substances—very positive developments, as China’s Vice Premier Liu is due in Washington on Wednesday to continue trade talks.
Interest rates increase, and consumption slows
Interest rates, which were due for pullback after the massive rally in March, are higher across the board with the yield on the 10-year up to 2.48%. Fundamentally, the bull market is still intact despite this pullback, and the forward rate markets are still pricing in two rate cuts by the Fed over the next two years. The 10-year is still expected to move close to 2.0% over the long run, yet we could see the yield move up into the mid-2.50s on this pullback. Just this morning, a report showed consumption was slowing as February Retail Sales Ex Autos are down -.4% vs. the +.3% that was expected. Take out gas, and that number worsened to -.6% vs. the +.3% that was expected.
What to watch for
While the bond market hangover should last throughout most of the week, the market will be waiting for Friday’s February Employment report to see which way to move.
Jeremy Collett is Guaranteed Rate’s Executive Director of Capital Markets. Market Updates are designed to provide readers with a high-level yet insightful view of how economic news, events and trends affect mortgage rates and the homebuying process.