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Interest rates are determined by the price/yield of the bond. Bonds can take cues from many places, but inflation always matters. Inflation was contained for nearly a decade before exploding in the post-pandemic era. A series of aggressive rate hikes by the Fed certainly haven’t solved the problem yet, but they might help.
We currently await data to confirm that inflation has turned a corner. As such, the market is sensitive to every small update on this topic and is marginally important today.
Buried in today’s GDP data was a number that suggests that tomorrow’s inflation-specific data (personal consumption expenditure) may be slightly higher than expected. Bond ground was lost in response (where “losing ground” means lower bond prices and higher bond yields/rates). That’s to say that mortgage rates have gone up today in response to the inflation data.
Apart from inflation, it was a quiet day for the bank drama as well. Back on Monday, banking concerns helped rates start the week in the stronger zone. First Republic Bank was in the news yesterday with some back and forth effects on the bond market. Now today, despite early rumors of First Republic Bank failing, the stock price was stable and the broader banking sector made solid gains. It also contributed to the upward pressure on rates today.
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