The
market
Is
calm
for
now

After
a
crazy
period
with
the
10-year
yield,
which
has
worsened
mortgage
spreads,
bond
yields
have
calmed
down
and
are
currently
at
4.17%
after
today’s
job
openings
report,
which
showed
a
labor
market
getting
softer
but
not
breaking
again.

While
the
trade
war
has
introduced
some
challenges,
particularly
regarding

mortgage
spreads,
there
is
an
opportunity
to
navigate
this
landscape
effectively.
Currently,
mortgage
spreads
have
increased,
contributing
an
additional
0.15%
to
0.20%
to
mortgage
rates
when
considering
the
lower
projections
for
2025.

This
is
a
common
occurrence
during
volatile
market
conditions.
For
example,
mortgage
rates
were
around
6.82%
yesterday,
but
they
could
have
been
approximately
6.62%
—
near
the
year-to-date
lows
—
if
we
had
access
to
the
best
spreads
for
2025.
By
staying
informed,
we
can
understand
the
markets
better.

Although
the
10-year
yield
has
remained
stable,
the
impact
on
spreads
is
becoming
apparent.
The
question
is:
Will
trade
deals
positively
influence
mortgage
rates?

Trade
deals

The
recent
performance
of
the
stock
and
bond
markets
has
shown
a
positive
response
to
the
prospect
of
ongoing
trade
negotiations.
Trade
agreements
can
significantly
alleviate
potential
shortages
and
stabilize
one-time
price
fluctuations,
much
like
the
improvements
observed
in
supply
chains
during
the
COVID-19
pandemic.

Nonetheless,
introducing
high
tariffs,
what
I
call 
“Godzilla
tariffs,”
may
create
a
sense
of
urgency
regarding
when
these
shortages
and
price
increases
will
materialize
to
get
deals
done. 

While
market
sentiment
has
faced
challenges,
labor
data
continues
to
reflect
resilience.
In
response
to
the
current
situation,
the
Federal
Reserve
has
adjusted
its
inflation
expectations
in
light
of
the
tariffs
and
revised
its
unemployment
rate
targets.
Should
we
successfully
reach
meaningful
trade
agreements,
it
could
enable
the
Fed
to
prioritize
measures
aimed
at
safeguarding
against
a
recession,
such
as
lowering
the
Fed
Funds
rate,
in
alignment
with
President
Trump’s
preferences,
allowing
bond
traders
to
adapt
accordingly.

This
outlook
is
contingent
on
the
successful
negotiation
of
these
trade
deals;
if
they
do
not
come
to
fruition,
we
may
need
to
monitor
the
impact
of
tariffs
in
the
months
ahead
closely.
Fed
President
Waller
has
expressed
a
desire
for
proactive
measures,
suggesting
that
if
the
labor
market
breaks
and
more
jobs
are
lost,
he
would
favor
more
aggressive
rate
cuts,
given
that
the
repercussions
of
the
tariffs
are
anticipated
to
be
temporary.
There
is
speculation
that
he
shares
the
perspective
that
these
tariffs
may
not
be
a
long-term
fixture. 

Conclusion

My
forecast
for
the
10-year
yield
in
2025 
was
that
we
should
be
in
a
range
of
3.80%
to
4.70%,
and
mortgage
rates
should
range
between
7.25%-
5.75%.
This
year,
we
approached
the
lower
end
of
that
forecast
on
the
10-year
yield
amidst
notable
market
volatility.
If
we
successfully
finalize
trade
agreements
promptly,
the
Federal
Reserve
could
prioritize
sustaining
economic
growth.
Conversely,
suppose
trade
agreements
are
delayed,
and
we
begin
to
see
shortages
and
price
escalations
across
various
products.
In
that
case,
the
Fed
may
be
more
cautious
than
anticipated.
While
this
does
not
necessarily
imply
an
increase
in
interest
rates,
it
may
indicate
a
shift
away
from
a
dovish
approach. 

Nonetheless,
observing
the
bond
market
responding
positively
to
ongoing
discussions
regarding
trade
deals
is
encouraging,
which
suggests
a
potentially
favorable
outlook
for
2025..