The week started off with no interest rate movements at all, but by Friday things had changed dramatically — at least compared to an exceptionally quiet week prior.
But overall, it was just one of several weeks of short-term volatility fuelled by Friday's unexpected spike in interest rates.
Incidentally, the fact that this week's interest rate spike occurred over the weekend means that Freddie Mac's weekly mortgage rate index failed to detect the change. More timely daily data shows that average mortgage rates are trending slightly higher this week, not lower.
The most eagerly awaited data was the May PCE Price Index, a similar inflation measure to the CPI (Consumer Price Index) released two weeks ago. The core PCE, which excludes more volatile food and energy prices, was even more favorable for the inflation outlook.
Looking at the chart above, it may look like inflation is back on target, but the benchmark for success is hitting 2% year-on-year growth. The Fed has signaled that it will consider lowering interest rates once it feels confident it can hit 2%. It's fair to say we're not there yet, but we're getting close.
Rates suddenly reversed on Friday afternoon, in conjunction with the forced trades that often create volatility at month-end or quarter-end (Friday was both). End-of-month trades have no basis in terms of their typical impact. In other words, they can be good or bad for rates. You can't know in advance. This time it was bad.
Some rate watchers have blamed the presidential debate, which may have contributed to the market volatility, but the volume and timing of the volatility make end-of-month/end-of-quarter trading the more likely explanation. Simply put, if the debate was the X-factor, we wouldn't have expected the market to wait for the biggest trades until the hours typically associated with end-of-month trading.