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Simple, Strong Correlation With Oil Leaves Yields Lower There's no sense in overcomplicating today's trading session. Oil was down significantly and so were bond yields. The correlation was very strong after 4am ET with each major peak and valley aligning. Econ data was present, but not a relevant consideration for trading. Stocks were also part of the correlation game but in a perfectly inverted way (peak in oil/yields = valley in stock prices). In other words, both sides of the market remain transfixed by energy prices. This hasn't been the exclusive market mover in March, but it's definitely been the dominant consideration, and that was double true today. Econ Data / Events NY Fed manufacturing -0.2 vs 3.2 f'cast, 7.1 prev Market Movement Recap 08:37 AM Moderately stronger overnight with additional gains in early domestic trading. MBS up a quarter point and 10yr down 4.6bps at 4.232 12:22 PM MBS still up a quarter point and 10yr down 4.1bps at 4.237 02:56 PM Best levels of the day with MBS up 11 ticks (.34) and 10yr yields down 6bps at 4.218

Mortgage rates are based on bonds, and bonds spent last week bracing for the impact of higher energy prices. In the bond world, higher inflation begets higher rates, all else equal.  Oil prices remain elevated, but fell more than 5% on Monday. The bond market responded with a drop in Treasury yields (which generally correlate with mortgage rates). Both the 10yr Treasury yield and the average top-tier 30yr fixed mortgage rate fell 0.06% on the day. That means mortgages are now at the highest levels in only 3 months after being at 7-month highs on Friday afternoon.  [thirtyyearmortgagerates]

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With no massive escalation in Iran over the weekend, oil prices trickled only modestly higher during Asian trading hours and began to recover during European hours. Early domestic trading kept the friendly trend intact with some help from Trump comments that suggested a limited timeline for the war. That said, the rally was more of a linear trend this morning and less of a volatile reaction to any individual newswire. Econ data is in the back seat to geopolitical events. The same will generally be true for Wednesday's Fed announcement, although volatility is at least possible thanks to the dot plot and press conference (rate cut = 0% chance). NOTE: you will never see a true 0% chance in terms of probability implied by futures contracts due to the structure of that market, but 99% = 100% and 1% = 0% for all practical purposes. 

Just a Bit More Selling to End The Week Nothing much new happened in the bond market today and that's not great because the status quo has been for rising energy prices to push bond yields higher (and stocks lower). The short end of the curve actually improved, but that says more about end-of-week position squaring than any new development.  All told, it was the least painful day of the week despite ending at the highest yields since Feb 4. Next week brings a Fed announcement with zero chance of a cut, but still perhaps some interesting commentary on how the Fed will sort inflation implications versus the economic impact. Econ Data / Events Core Retail Sales (Jan) 0% vs 0.5% f'cast, 0.6% prev Core PCE (m/m) (Jan) 0.4% vs 0.4% f'cast, 0.4% prev GDP Q4 0.7% vs 1.4% f'cast, 4.4% prev USA JOLTS Job Openings (Jan) 6.946M vs 6.70M f'cast, 6.542M prev Market Movement Recap 08:33 AM Sideways to slightly stronger and a modestly positive reaction to the 8:30am data. MBS up an eighths and 10yr down 1.34bps at 4.252 11:47 AM MBS down an eighth of a point and 10yr up 1.3bps at 4.278 01:21 PM flattening out at weakest levels.  MBS still down an eighth and 10yr up 1.9bps at 4.284