Tariff Talk Dominates Headlines Yet-Again

Rates decline following President Trump’s tariff comments. Markets were risk-off today after President Trump reaffirmed his commitment to enacting tariffs against the EU, Mexico, and Canada. Trump stated, “I’m not stopping the tariffs,” before specifying that levies against the EU would be 25%. Treasury yields dropped 2-5 basis points with markets concerned about slowed global economic activity, the fourth consecutive session of declines. Meanwhile, the US dollar pared earlier losses while the Canadian dollar and Mexican peso weakened in the immediate aftermath of Trump’s comments.

House of Representatives approves a budget blueprint calling for significant tax cuts. The Republican-led House passed a proposal this morning that calls for $4.5T in tax cuts, which has largely been pushed by President Trump as key to stimulating economic growth. The plan would effectively renew Trump’s 2017 tax cuts that are set to expire at the end of 2025. The budget plan also calls for $2T in federal spending cuts over the next ten years, though it would be expected to add to the budget deficit and would also raise the US debt limit by $4T. However, the market reaction was relatively muted because of a largely contrasting budget plan that was passed by the Senate last week, which does not include tax cuts or an increased debt ceiling.

Mortgage applications fall despite lower rates. Mortgage applications fell 1.2% for the week that ended February 21st following a 6.6% decline in the prior week. Decreased application volume comes even as the average rate on a 30-year fixed rate loan has declined ~24bps since mid-January to the lowest levels since December, as potential borrowers become more negative on the economy and job market. Existing homeowners were also more reluctant to refinance their current loans, with overall refinance applications falling 4% during the week. Looking ahead, low housing inventories, the impact of tariffs on construction costs and the potential for higher rates remain possible headwinds for would-be homebuyers.