A Bad Week For Rates

The Bond Market called BS on Kevin Warsh. 

This was a bad week for anyone watching interest rates. Not a panic or crisis necessarily but a grinding, relentlessly bad week where every data point that dropped confirmed the thing the market has been quietly pricing in for months.  

Bonds had a brutal week - down as much as 46 basis points intraday before partial recoveries each session. The 10-year Treasury yield passed 4.56% this morning, which is the highest level in a year. The 30-year fixed is inching back towards 6.5%, which sucks. 

Here’s what happened this week. 

Tuesday: CPI 

The Consumer Price Index rose 3.8% year over year in April - the highest annual rate since May 2023, and above the 3.7% consensus forecast. On a monthly basis it came in at 0.6%, in line with estimates, but the annual number was the headline. Core CPI - the number that strips out food and energy and is supposed to show the underlying trend -- came in at 0.4% monthly and 2.8% annually. The monthly rate was the highest since January 2025. 

Energy was the villain. Gas prices are up 28.4% annually. Beef is up 14.8% year over year. Airline fares went up 20.7%. These are not rounding errors. These are the numbers people feel in their daily lives. 

Real wages, another number people tend to feel on a personal level because it’s what you actually take home after inflation - slipped 0.5% for the month and fell 0.3% annually. We need to make sure we are fully grasping this. For the first time in three years, inflation is eating up all wage gains. This situation is not good. 

Inflation is the key drag on the U.S. economy right now.  

Wednesday: PPI 

If CPI was bad, PPI was worse. 

The Producer Price Index - wholesale prices, what businesses pay before costs get passed to consumers -- rose 1.4% for the month. Nearly triple the 0.5% consensus estimate. The largest monthly gain since March 2022. On an annual basis, wholesale prices are up 6.0% - the biggest increase since December 2022. 

Here is why PPI matters more than people realize: it is a leading indicator. What producers pay today, consumers like you and me pay in 60 to 90 days. The trade services category - which measures wholesaler and retailer margins and gives us direct evidence of tariff pass-through - surged 2.7% for the month. The largest advance on record going back to 2010. 

EY's economists are now projecting CPI could surpass 4% in May while core inflation approaches 3%. That forecast was also written before today's 10-year closed above 4.54%. 

When CPI and PPI both print hot in the same week, the bond market pays attention…. 

Oil and the 10-Year 

Traders are now fully pricing in one rate hike by the Fed before the end of 2026, with more than a 50% probability of a rate increase before year end. Ain’t that a kick in the pants considering we started 2026 talking about rate cuts. We are ending this week officially considering rate hikes. 

The war with Iran is the engine underneath all of it. Economists warn that even in an optimistic scenario where conflict resolution happens in the next few weeks, it could still take six to nine months for supply chains to normalize. Oil is not coming down quickly and oil feeds everything -- gasoline, food transport, manufacturing, airfares. The inflation data we are seeing right now is not the peak of the war's impact on the pipeline. That is honestly scary. 

The 10-year Treasury yield is at a one-year high and home loan rates are following. The spread between the 10-year and the 30-year mortgage rate -- which widened dramatically during the volatility of March -- has partially compressed (thank God) but has not normalized. Your buyer is still paying a market uncertainty premium on top of an already elevated benchmark. I explained how that works on Instagram this week.

And Then There's Kevin Warsh

In the middle of all of this - on Wednesday, the same day PPI dropped - the Senate confirmed Kevin Warsh as the next Federal Reserve chair in a 54-45 vote, the most divisive confirmation in Fed history but only one Democrat crossed over - Pennsylvania Senator John Fetterman. Powell's term officially ends today, May 15th. Warsh's first FOMC meeting as chair is scheduled for June 16-17.

Today, the bond market is acting as his welcoming committee.

Warsh has been publicly philosophizing about AI creating efficiencies in the workforce that could help tame inflation. He has a new framework for measuring inflation that strips out extreme price shocks. He has ideas about regime change at the central bank and new ways to communicate policy. 

The bond market doesn’t seem to give a shit about his philosophies.

Traders are now pricing in more than a 50% probability of a rate hike before the end of 2026. Again, we started 2026 talking about rate cuts. This week the market moved to pricing in hikes. That is not a subtle shift. That is the bond market sending a message to the new Fed Chair before he has even held his first meeting.

The message is simple: it does not matter how you measure inflation. It does not matter whether you strip out the war or the oil spikes or the beef prices to find some theoretical underlying rate. Between the tariffs that were already feeding into wholesale prices and a war that pushed gasoline up 28% annually, inflation is hot by any honest measure. And the bond market is telling Kevin Warsh - in the loudest possible terms - you better get this under control bro. 

Trump's own allies are already warning he may not get the rate cuts he's expecting. That is not a media narrative. That is the market pricing reality before Warsh has a chance to complete orientation.

Here is the impossible position he is inheriting. If he cuts rates to satisfy the president who nominated him, he risks pouring gasoline on an inflation fire that is already above 3.8% headline and accelerating. If he holds - or insert gasp, hikes - he does precisely the opposite of what Trump has publicly and repeatedly demanded. And he is one vote on a 12-person committee. He cannot just order rate cuts into existence. He has to build consensus among officials who just watched the hottest CPI and PPI prints in years land in the same week.

There is no clean move here. And the bond market priced that reality all week long.

What This Means for You Right Now 

I am not going to sugarcoat a bad week for rates. It was a bad week.

But I also want to bring some calm and clarity to the table. 

The inventory sitting in your market right now does not care about the 10-year Treasury yield. The seller who listed before February 28th and has since accepted where the market is -- that seller still exists. A bad week in the bond market does not erase the negotiating leverage that a low-confidence market creates for prepared buyers.  

What a bad week in the bond market does is thin the competition further. Every week of rate volatility is another week that hesitating buyers stay on the sidelines. And every week they stay on the sidelines is another week you have negotiating power.