Bond market rejects Treasury’s game plan, for now

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about how the market is reacting to the $6 billion Treasury debt announcement and how the Fed is weighing inflation ahead of its meeting next week.  Related to this episode:  Commodity inflation is hot, but Fed is still focused on core inflation https://www.housingwire.com/articles/commodity-inflation-is-hot-but-fed-is-still-focused-on-core-inflation/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  Buy one, get one FREE tickets to the Mortgage Banking Summit on October 1st https://events.housingwire.com/mortgage-banking-summit-2026  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  GSEs open VantageScore 4.0 to all single-family lenders https://www.housingwire.com/articles/gses-broaden-vantagescore-4-0-access-rocket-uwm-dominate-volume/  Commodity inflation is hot, but Fed is still focused on core inflation https://www.housingwire.com/articles/commodity-inflation-is-hot-but-fed-is-still-focused-on-core-inflation/  UWM drops high-balance LLPAs, extends Bullseye 90 pricing https://www.housingwire.com/articles/uwm-llpas-bullseye-90/  Who’s running Real REMAX? The new leadership team takes shape https://www.housingwire.com/articles/real-remax-group-c-suite/  Envoy Mortgage taps Chad Smith as CEO, deepens integration with PLACE https://www.housingwire.com/articles/chad-smith-envoy-mortgage-ceo-place-mortgage-division/  Want more from Sarah? Don’t forget to subscribe!  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:11Welcome, everyone. I'm joined today by lead analyst Logan Motoshami to talk about how the

00:16Fed is weighing inflation ahead of its meeting next week. Before we dive in, here are the top

00:21five trending stories on HousingWire.com. The first is GSE's Open Vantage Score 4.0 to all

00:28single-family lenders. Followed by Logan's article, Commodity Inflation is Hot, but the Fed is still

00:34focused on core inflation. Then we have UWM Drops High Balance LLPAs, Extends Bullseye 90 Pricing.

00:42And Who's Running Real Remax? The New Leadership Team Takes Shape. Finally, we have Envoy Mortgage

00:53Taps Chad Smith as CEO, Deepens Integration with Place. Okay, we have a

00:58lot to get to. Let's dive in. Welcome back to the podcast. It is wonderful to be here. What a

01:05crazy,

01:06crazy, crazy, crazy day. It's Wednesday morning. A lot has happened. By the time this podcast comes

01:14out, the PPI inflation will come out, the CPI inflation. We have a lot of news that is very,

01:20very important to the real estate mortgage industry that doesn't have anything to do with

01:25the inflation reports just yet. Scott Bessend is doing this. He talked about how he's the house,

01:36that he's now the biggest trader in the world, and that he's trying to talk tough to the bond market,

01:44and everyone kind of joked about it on Twitter land. But here comes Wednesday morning,

01:51the conflict is getting worse, right? We're blowing up tankers. They're shooting missiles at bases.

01:59The 10-year yield didn't really move too much, but oil prices are picking up. And like we've

02:05talked about, that oil chart looks terrible now. It looks like we have a lot of upside potential. And

02:10now we're going into this fourth phase. But then the treasury announced like they're going to buy

02:19back 6 billion. And it just wasn't big enough. The 10-year yield went up four or five basis points

02:25right off of that news. So the man who said he's the house, I said, the house trader lost this

02:32one.

02:33It's not big enough. And it's hard to do something like that on a day where we're escalating the

02:39conflict. And oil traders and bond traders are probably all looking at the same chart. It's not

02:44good. This is not a good setup. So yields went up, mortgage rates went up, and Lord, we don't hug

02:53a mortgage spreads. We got to marry it now, man. Because even with the 10-year yield getting at 485,

03:00even with the conflict the last 15 days having three escalating events, and the bond market did

03:07not like the announcement of the buybacks, mortgage rates are still slightly under 7%. And this is the

03:14last stand mortgage spreads can do on this one. Because we're pushing this to a lever that

03:21not a lot of people thought would happen. But we're testing it to the extremes. And that's why we wrote

03:28that article in July about, you know, it's hard to get mortgage rates above 7% with the spreads where

03:33they are. But man, we are pushing that lever with escalation of conflict and not enough government

03:42gimmicks to try to keep yields from heading higher. It's interesting because the Treasury

03:47Secretary, he announced this last week, right, or whenever it was 10 days ago and said, okay,

03:53this is going to be the date, not knowing what the conflict was going to be like on this date,

03:58because to your point, it just feels like sort of counterintuitive.

04:04It's like what we've said the last kind of six, seven weeks, the bond market and the conflict are

04:10moving more and more in tandem. In fact, it's been the highest correlation in many years.

04:17And the Federal Reserve doesn't like the conflict. Diesel prices are up. Copper prices are up. Oil

04:25prices are not back to yearly highs, but breadcrude is back above. Breadcrude is now back above 100.

04:30This is the third time this has happened this year. And then on top of all that, there's things that

04:37Scott Besson can do. Like they could they could do a lot bigger things if they wanted to. But man,

04:42this has not been a week for, you know, trying to calm the markets down. And I just I just

04:49don't

04:50like that oil chart. And then on top of everything else, Trump comes out and says, well, oil prices

04:58will fall after the election. And we're like, what election? Which one? The one coming up or the one

05:04to, you know, and what we talked about last time, that his aides are saying Iran has no intention of

05:11doing a deal with you until after the midterms. So and this was I don't know if this is the

05:17official,

05:18but it's kind of like, hey, man, there's nothing we're going to do there. They're not going to make

05:21a deal. So we're not going to make a deal. We're going to go after them. So that's not a

05:27very

05:29constructive backdrop over the next few months. If we're just basically saying, hey, listen,

05:34we're just we'll just wait till after the election. And then after the election, who,

05:38you know, you're you're you're you're basing off the Iranians, then changing the game plan. So

05:43a lot has had this morning that we were not going to even talk about, you know, beforehand. But here

05:50we

05:50are. This is where we're at. Here we are. OK, well, let's talk about inflation, because,

05:54of course, we have a Fed meeting next week. Crazy, crazy timing. And you wrote an article

06:02about commodity inflation, but how how you see the Fed weighing, you know, core inflation versus

06:09commodity inflation. You just you just talked about oil prices, copper prices kind of walk us through

06:14that. I'll pretty much in simple terms, I don't even think if the inflation numbers were good,

06:23it matters now because the conflict is getting to a stage where it can escalate. And even if you had

06:29softer core inflation on CPI, I just don't think it does anything in this environment. But what we've

06:37had is we've had massive commodity inflation in a few areas pick up and we're still debating,

06:44should we hike rates or or keep them at bay? Of course, the rate cut stories is all but dead

06:50that died a long time ago. So people are pondering, why are we even debating this if if inflation is

06:58above target or unemployment rate is low? And the Federal Reserve has talked about we would like to see

07:04the the month to month numbers be, you know, zero point two percent. So those are the things that

07:12Christopher Waller and some of the other people. But does it even matter at this stage with the 10

07:17year yield where it is? I mean, we've lost all, you know, grasp of this conversation because the

07:23conflict hasn't ended. And now we're taking it to another stage. So it just it just got to another

07:31complicated stage this morning. If it is true that Trump really meant what he said that we're not

07:38going to we're we'll wait until after the elections. This means we're going to have months of possible

07:44this thing can escalate even more. And the Federal Reserve just won't won't care because if oil prices

07:50are elevated, diesel prices are elevated, copper prices are elevated. These are all embedded inflation

07:57things that they're keeping an eye on. And the 10 year yield just doesn't care.

08:01They just keep on slowly moving higher and higher. So the inflation reports are important. But I just

08:07don't think until this thing ends, we just don't know how bad it can get. It's so interesting that

08:15this is all happening in the midterms here that the one possible thing that you could really do to like

08:25I'm just hoping this was all planned beforehand going in. Because to try this, this was tactically

08:32just not a political savvy thing at this point. And now we're stuck here with possibility of this

08:39not ever ending until after the election. And I'm hoping that was just maybe strategy or whatever it was.

08:46But if the aides are telling the president, hey, they're not going to give up until after the

08:52election, President Trump will say, ah, screw it, whatever. We're just going to blow up as many

08:55things as we can until then. I think this has been the story of this year where it's like,

09:02we get some economic news and we're talking about that. And then the conflict flares up again.

09:06You're like, it doesn't matter what the economic, you know, what that data is, what's running the show

09:11is, is the conflict. And then it would die back down. And then we're like, okay, let's look at

09:15this. And I feel like we just got slapped again because we were talking about, okay, this, we're

09:20going to talk about inflation. We're going to talk about this. And you're like, yeah, it may not even

09:22matter. May not even matter. You know, you know, I had a discussion with, with people online that,

09:28you know, where would mortgage rates be if we had no conflict? And I said, you know, the upper end

09:33range would be six and a quarter to six and a half. And people go, well, no, no, no, that's

09:37not,

09:37we were at 6%. No, the 10 year yield was a sold, the 10 year yield rallied to what I

09:45didn't believe

09:45was a valid theory, but it's still brought us down to a level, which was the fear of the labor

09:50market

09:50and, and, and private credit getting worse. That isn't happening. But what we are doing

09:57systematically is we're putting in inflationary pressures that the fed has basically said, we care

10:03more about this than, than this other thing. And it's not dissipating. And we're, we're like doing

10:10memes where Trump is beating up the, you know, Mark Carney in a, in a, in a, in a hockey.

10:17I'm like,

10:19we, we like needed some calmness this week. And we haven't even had to do, we haven't even got to

10:25the inflation report. And with all that said, you know, purchase application data itself was like

10:30flat week to week. I mean, the NBA said it was positive year over year. I, I, I, I didn't

10:35see

10:35that in data, but, but it's just like spreads could only do so much guys. I tell you, I mean,

10:41the slow dance really runs a show, but we've, I, I feel like the mortgage spreads are King Leonidas

10:48in 300 where, you know, he's doing that last little war right before he gets, you know,

10:55arrows put it in and, but it could only do so much here. So it just a fascinating morning to

11:01see how

11:02the markets are reacting. Cause I'm sure Scott Bessett didn't think that, you know, the 10 year

11:07yield would spike up after the treasury announcement, but if they want to do this,

11:11they got to go much bigger. They got to cut all long-term issuance. They got to only do short

11:15-term

11:15and then make it bigger. But this to me is like, now this is war. This is forget about economics.

11:21This is out flat out, you know, economic warfare. You got to do crazy things to prevent

11:27yields from going higher. If you want to say, this is it, we're just going to wait until after

11:32the elections that happens. So right now, of course I'm in Dallas and we are having,

11:38there's a midterm of a Republican midterm event here. I think it's called Trumpapalooza. I think

11:43that's, that's it. Anyways, it's just a couple of blocks away. We're going to be covering that

11:47because there are a couple of mentions of housing that are on the agenda and you never know if it's

11:53going to come up. But I think one of the things you see is like throughout the agenda, it's like

11:57affordability. He doesn't quite say it that way, but like, you know, the American dream and buying

12:01homeowners. And we know this is an administration that wanted to see lower mortgage rates, but it

12:07feels like they've been unable to, you know, to, to deliver on that because of their own actions.

12:17If you really, really wanted lower rates, you don't do a tariff and conflict in the same year.

12:23Just like, you know, and to me, first of all, the most important thing is that the labor data

12:30did improve. The Federal Reserve gave break-even numbers that are very low. The bond market took it

12:35for, for, for what it's worth. Nominal growth is still high, but

12:40you can talk about all these great ideas. You can sign every bill, but if demand does not grow,

12:48well, I mean, what's the point? So early in the year, like we showed in our data,

12:54when mortgage rates just get to 6%, you know, and, and even now it's, it's, it's held up better than

12:59what, you know, the existing home sales report comes out Thursday morning.

13:04But what we are doing right now, this is a huge, huge conflict with the bond market and oil prices

13:10and everything. And I just, I don't like this setup. When there was a setup where every single

13:16oil rally was being sold off before it hit the highs and then we got a deal, whatever, that's

13:21one thing. But if we're like now saying we're, Hey, we give up, we're just going to wait until after

13:26the elections. And now you're hoping that they actually do something different. Listen, the year

13:32is almost over at that point. So you got to be a little bit more mindful of what these headlines

13:39are and what they really mean. I know Trump likes to talk tough, you know, but boy, this was probably

13:47was a wake up call for the treasury today. I mean, Scott Besson, the last thing he wanted to see

13:54is the

13:5410 year yield go up on the news, not back on the news. And we always said, these are defensive

13:58mechanisms. These are not like a lot of people keep on thinking this is QE. There is no quantitative

14:04easing until they get to zero interest rate policy. A lot of people get mixed up what, what operations

14:10are different, but this is not QE. This is not really designed to push rates lower. You need to get

14:15the conflict over. You need to get the fed off the hawkish things. And then all this other stuff can

14:20help

14:20out. But man, what a, what a fascinating week. And this is an inflation week and we haven't even

14:27gotten any of the reports yet. We really haven't. Okay. So we don't know what the inflation reports

14:34are going to say, but when it comes to next, next week's fed meeting, how does the conflict play into

14:39that? What, what are the, what are the over under on, on a fed funds rate hike?

14:46If I am the fed hawks and I heard president Trump say that we're just going to wait until after

14:54the

14:54elections. I mean, if Beth hammock is listening to that, if Lori Logan is listening to that,

15:01if Neil Kashkari is listening to that, if the smirk of Austin Goolsbee is listening to that,

15:07they're going, Hey, listen, I'm not getting dovish here. Things could get a lot worse.

15:12Uh, uh, so I don't, I don't, I, I, I, I, this is, this, this is different. This is actually

15:23a,

15:23this is a different things. If we're, if we're just basically telling the fed, Hey, listen,

15:27we're not, we don't care until after the election. We'll see if oil prices go down.

15:31This means this is going into a very, very long period of time. Um, so we'll see, we'll see what

15:38happens every day, but I thought today was one of the more important market days of the year to have

15:44the bond market reject Scott Besson's house trader, to have Trump say that we might just have to wait

15:50until after the elections, uh, to start doing these tanker to tanker, blow up tankers, shooting at

15:57basis. This is the escalation. And we go back to July 8th and said that, you know, what, you know,

16:03it's, it's hard to get mortgage rates above 7%. But if you, if the thing gets worse, if the conflict

16:10gets worse, right. And we've had higher oil prices, that's not the thing. It's just that

16:14the embedded inflation is can, can, can keep things being sticky, but the bond market is kind of doing

16:19its own thing right now. So, um, I I'll be very interested to see how the 10 year yield ends

16:27this

16:27Friday because the treasury secretary can do, you know, bigger stuff if they wanted to, and maybe

16:34they have to go into that route. And I look at it, like I looked at the mortgage backed security

16:38purchases, everything as a defensive mechanism, not an offensive one, but a defensive one.

16:43And this conflict is really, if you, if you really wanted to go on the offense, you take care of

16:48that

16:48first. And it does not look like after today, what was said that that's any, anything soon at this

16:55point. We really don't need mortgage rates over 7%. But like you said, I mean, it's, it's a miracle

17:01they have not been over 7% so far and all due to mortgage spreads. I mean, I, this is

17:07not how I

17:08wanted to prove this premise. I did not want this to be, you know, boy, the, the conflict is going

17:14into month eight, nine, or 10. And then, you know, but, but here it is. I mean, this is, this

17:19is the,

17:20this is today's day Wednesday. You get to really see it. I mean, it was 6.97%, which in the

17:27past few

17:27years would, you know, when we're above seven and we get below seven, everyone is happy about that.

17:32But man, this is, this is its last King Leonidas stand, man. You know how they say the Spartans are

17:43descendants of Hercules himself, you know, and you know, that last war, but you, you can, if you

17:49escalate at this point, I don't know, I don't know how much best it has in his arsenal or how

17:56much he

17:56wants to use at this point. All I know is that we're probably not going to get any government

18:00shutdown because if they want to do the TGA fund, they need to make sure that, you know, there's

18:05enough money to pay the bills there. But man, we are just, we are just rolling dices here at this

18:10point, which is, it's, it's very interesting to see how the bond market reacted to this

18:16out here. And I'm really fascinated to see where it closes on Friday after we had the two inflation

18:21reports and who knows what headline news comes out now or, or even going into the weekend.

18:29Logan, as always, I love that you keep us up to date. And I know that tomorrow we're going to

18:34be,

18:34you're going to be covering the inflation reports. We'll jump back on the podcast. So everyone stay

18:39tuned, but thanks for talking us through it. Pleasure, but woohoo, no more kissing or hugging

18:46a mortgage spread. Marry the thing, man, because today, today, listen, you're, you're looking at

18:51like mortgage rates at 815 at 2023. You're looking well, you're getting closer, closer toward 8% in

18:582024 spreads. And even last year, the worst levels of the spreads last year, you're over seven and a

19:03half. Right. So more, I mean, it could be a lot worse, but man, this, this conflict is really,

19:11really thrown a curve ball into everything for 2026, heading into the midterms. And now we might

19:18be looking at this going past the midterms at that point. Incredible. Okay. We will talk again soon.

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