This past week, interest rates improved in response to bond-friendly news. Let's dive into what happened and peek at the week ahead.

"Here comes the sun. Here comes the sun, and I say
It's all right". Here Comes the Sun by The Beatles

Inflation Eases Further

The consumer price index for May showed inflation cooled more than expected. The headline CPI, which includes food and energy, clocked in at just 2.5% year-over-year, the lowest reading in four years. The more closely watched core CPI, which strips out food and energy, held steady at 2.8% when economists were bracing for a bump to 2.9%.

The Federal Reserve, which has a mandate to keep prices stable, must be pleased seeing inflation moderate further. This sets the stage for potential rate cuts later this year. The bond market is on the same page; the 10-year Treasury note, which was at 4.50% before this report, has since dipped into the low 4.30s, giving mortgage rates a bit of a breather as well.

US-China Trade Progress

On the trade front, there's been some encouraging news between the US and China. Recent talks have focused on easing tensions around tariffs and export restrictions, particularly on tech and manufacturing goods. Both sides seem to be inching toward a framework that could stabilize supply chains, which have been a headache for businesses. The US is pushing for fairer access to Chinese markets, while China's looking to dial back some of the restrictions on its tech firms. No major deals have been inked yet, but the tone is less combative than it's been in a while. If progress continues, this could take some pressure off global markets and, by extension, help keep interest rates from spiking as supply chain costs ease.

Long-Term Auctions

There's been plenty of chatter about our growing debt and deficits. These budget deficits need to be funded by selling bonds, and when the Treasury Department auctions long-term bonds, there needs to be solid demand. Otherwise, it puts upward pressure on interest rates. The good news? The Treasury recently auctioned a hefty batch of 10-year notes, and the buying appetite was strong, which helped nudge interest rates down a bit. A healthy bond market appetite is a win for keeping rates in check.

30-year Mortgage Rates

Speaking of rates, the 30-year fixed mortgage rate as of June 12, 2025 averaged 6.84%, according to recent data from Freddie Mac. This is down slightly from earlier in the year when rates were flirting with the low 7s, thanks to the bond market's reaction to cooling inflation and strong Treasury auctions. While still high compared to a few years ago, this dip offers some relief for homebuyers and refinancers keeping an eye on affordability.

4.50% As a Key Level

The 4.50% mark has been a critical level to watch in the bond market. It's acted as a ceiling of yield resistance on the 10-year Treasury note, keeping rates from climbing higher over the past month. If this ceiling holds, 4.50% could mark the upper bound of where rates are likely to go. On the flip side, if inflation keeps cooling and bond demand stays strong, we could see rates trend lower from here.

Bottom line: A ton of uncertainty still lingers when it comes to taxes, regulations, tariffs, and more. For now, this is keeping many firms in a holding pattern; neither hiring nor firing aggressively. Interest rates, as a result, are stuck in a sideways range. Once some of this uncertainty clears, we'll get a clearer picture of where rates and the broader economy are headed. Until then, keep an eye on inflation reports, trade talks, and those Treasury auctions; they're the ones steering the ship.

Looking Ahead

Next week is Fed week as the Federal Reserve meets and shares their interest rate policy decision and updated forecast on rate direction, inflation and the economy. There is no chance for a rate cut, but what the Fed says about the recent low inflation numbers will be closely monitored. There have been many cries for the Fed to lower rates because inflation is well below the Fed Funds Rate, which has historically led to rate cuts. Outside of the Fed, there are no high impact economic reports set for release, so market direction will be more driven by the Fed and ongoing tariff negotiations.

For homebuyers and refinancers, mortgage rates are critical and closely tied to mortgage bond prices. The chart below tracks the Fannie Mae 30-year 6.0% coupon. The rule is straightforward: rising bond prices lead to lower mortgage rates, while falling prices drive rates higher. The right side of the chart shows prices have bounced higher in response to the lower-than-expected inflation data. For rates to move another leg lower, we need to see the Bond bust above $101.50, which it has not done consistently in over 8 months.

Chart: Fannie Mae Mortgage Bond (Friday June 13, 2025)

Economic Calendar for the Week of June 16 - 20