Mortgage Bond Market Weekly Review – May 16, 2025
This week’s mortgage market activity offered a blend of optimism and late-week uncertainty, with key economic indicators, global headlines, and unexpected credit news influencing rates. For much of the week, bond markets were relatively steady, supported by cooling inflation data and continued strength in the labor market. April’s Consumer Price Index (CPI) rose just 0.2%, bringing the annual inflation rate down to 2.3%—a multi-year low that helped stabilize mortgage-backed securities (MBS). As a result, the iShares MBS ETF (MBB) edged up to $92.37, while the Vanguard MBS ETF (VMBS) remained flat near $45.64.
Markets initially reacted positively to news of a temporary 90-day tariff truce between the U.S. and China, which helped fuel a rally in equities and boost investor sentiment. However, mortgage rates stayed relatively insulated from this surge, as bonds continued to attract attention. Notably, mortgage bond funds saw their highest weekly inflow since mid-2024, with $1.43 billion entering the space—a sign that investors are increasingly viewing MBS as a haven in a mixed economic environment.
Thursday proved to be a pivotal day for rates, as weaker-than-expected Retail Sales figures and a calm, reassuring speech from Fed Chair Jerome Powell provided further support for bonds. Mortgage rates improved slightly in response, though any momentum was short-lived.
Friday brought a double dose of market-moving news. First, preliminary consumer sentiment data showed inflation expectations rising to levels not seen since 1981. While consumer sentiment surveys aren’t the most precise inflation predictors, markets still respond when these figures hint at rising price expectations—especially when consumers start making purchasing decisions in anticipation of future cost increases. The result was a brief uptick in bond yields and some rate pressure.
Then, just minutes before markets closed, Moody’s announced a downgrade of the U.S. credit rating. The late timing of the announcement meant many lenders had already set pricing for the day, but bond yields reacted quickly, pushing upward in the final 15 minutes of trading. While the long-term impact remains to be seen, especially given past credit downgrade events like in 2011, the move injected a fresh layer of uncertainty into markets heading into the weekend.
What Cooling Inflation and The US Credit Downgrade Means for Raleigh Homebuyers
For homebuyers in Raleigh, this week reinforced that even in the face of improving inflation trends and solid employment numbers, mortgage rates can still shift on a dime. While the broader economic picture is encouraging—especially for those waiting for rate stability—the unexpected rise in inflation expectations and the Moody’s credit downgrade underscore the importance of timing in today’s market. Rates remain elevated above 7%, but some stability in mortgage bonds suggests that locking in could be advantageous if volatility continues.
What’s Ahead
Looking to next week, markets will be watching closely for updates on housing starts, building permits, and any statements from the Federal Reserve regarding its interest rate outlook. These indicators will play a crucial role in determining whether the recent wave of uncertainty is just a ripple—or something bigger.
At Certified Home Loans, we monitor these trends closely to help Raleigh-area buyers and homeowners make informed mortgage decisions. Whether you’re buying, refinancing, or just exploring your options, we’re here to guide you through every market movement with clarity and confidence.
Have questions about your mortgage options? Let’s connect—our Raleigh Mortgage Team is here to help.
