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This week has presented a unique set of challenges for the markets, with jobs week coinciding with tariffs week, leading to significant headline events that have driven mortgage rates lower even with positive labor data.
We’ve observed a notable decline in both stocks and bond yields this week. Importantly, this period has highlighted that the significant tariff announcements were crucial in driving bond yields and mortgage rates to the lowest levels we’ve experienced so far in 2025. If the tariffs weren’t announced this week, the 10-year yield probably would have been trading at 4.35% today given the labor data.
In 2024, when the 10-year yield broke to the lows for that year, we had a series of labor reports that missed estimates, but that has not been the case this week, something I talked about on this episode of the HousingWire Daily podcast.
BLS Jobs Friday and jobs week data
From BLS: Total nonfarm payroll employment rose by 228,000 in March, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in social assistance, and in transportation and warehousing. Employment also increased in retail trade, partially reflecting the return of workers from a strike. Federal government employment declined.
The jobs report exceeded expectations, including a negative revision of 48,000. We may encounter additional revisions in the future but nonetheless, this report can still be viewed in a relatively positive light, even with the higher unemployment rate.
Also, my main labor trigger warning, the residential construction side of the labor market —which typically breaks before every recession — grew just a tad. So, we haven’t seen the downtrend in job losses here yet, either.
The other labor reports, including job openings, ADP, and jobless claims data, were all positive this week. We had nothing indicating that the labor market was breaking. It is getting softer, yes, but not breaking.
Bond yields and mortgage rates
Friday morning, China responded to the trade war, levying an additional 34% tariffs on U.S. goods, which led to a notable decline in bond yields, prompting a sell-off in the stock market. Moreover, Jerome Powell’s remarks during the Federal Reserve press event Friday were not as dovish as some might have hoped, contributing to the current market volatility. Instead of talking about taking action to help the economy — something President Trump wanted him to do today by cutting rates — Powell’s tone was more about waiting and watching to see the full impact of tariffs. Of course he can take that stance because the labor data isn’t breaking on him.
It’s crucial to analyze these developments as they impact the financial landscape. I want to share a snapshot of the 10-year yield, especially since mortgage spreads can widen significantly in such situations. My lower-end forecast for the 10-year yield is 3.80%, and we came pretty close to that level today.
An example of the volatility in the 10-year yield today: it dropped from 4% to around 3.87% and then back up to 4% — all before lunchtime on the West Coast. As a result of this morning’s fluctuations, mortgage rates have reached a new year-to-date low. However, a single announcement about a resolution to the trade war could cause bond yields, mortgage rates and stock prices to rise significantly.
Conclusion
I understand that these market fluctuations can be concerning. It’s important to note that the recent drop in yields was not due to the labor reports but rather the impact of the Godzilla tariffs imposed this week. In this unpredictable environment, things can change in an instant. Even as I write this, the situation could evolve within just a few hours, so stay tuned for more updates.
