Mortgage-backed securities (MBS) rose by 19 basis points (bps) and stocks went up by 6 points following the release of Consumer Price Index (CPI) numbers. Bond prices were unchanged before the release of the CPI figures, and they moderately rallied when the results were as expected. The core CPI, which excludes food and energy prices, rose by 0.4% month-over-month and 5.5% year-over-year, exceeding the Fed’s 2% inflation target. The increase in inflation was primarily driven by higher shelter costs, followed by used cars and trucks. Meanwhile, the Federal Housing Finance Agency (FHFA) has withdrawn upfront fees based on borrowers’ debt-to-income ratios for loans acquired by Fannie Mae and Freddie Mac.
The credit availability report of the Mortgage Bankers Association reveals that the trend of mortgage lending is declining across the board. The drop-off in credit lines is a result of the massive credit creation during QE4, and it is part of the solution to the damage caused by the financial crisis. NY Fed Chairman John Williams said that it may take a couple of years for inflation to return to the Fed’s 2% target and warned against rate cut forecasts for this year. The CPI data had some rate-friendly elements, but overall, it met expectations. Although the report was positive for rates, the unwillingness to rally past any range boundaries suggests that more economic reports are needed to determine any major shifts. At the end of the day, MBS rose by 1/3 of a point, while the 10-year Treasury yield dropped by nine basis points.