In the past month, the U.S. economy has displayed some emerging concerns. While the economy entered 2025 with strong momentum, as evidenced by robust GDP growth and a firm labor market, inflationary pressures remained a significant factor. Inflation is rising again, so further interest rate cuts are not expected within the first half of the year. Consumer spending experienced a notable decline in February, reflecting heightened concerns about inflation, trade policies, and the overall economic outlook. This decrease in consumer confidence, coupled with rising inflation, signals potential headwinds for future economic growth. Unemployment numbers are on the rise as well, especially as federal government layoffs continue to surge as the Trump administration slashes government jobs. The GDP is now expected to contract by 1.5% in the first quarter, which would be the first contraction since 2022. Geopolitical events regarding the Russia-Ukraine war seem to have only worsened due to a recent contentious meeting with President Trump and President Zelensky. The Israel-Hamas war continues to grind on interminably as well. Oil prices are at $70/barrel.

The yield curve is now barely positively sloped. The 10-year Treasury is at 4.29, which is down 23bp from last month. The one-year is at 4.13 which is down 3bps from last month. The 30-year fixed rate mortgage is at 6.57% which is down 25bps from last month.

Prepay speeds remain low, although speeds on coupons above 6% are beginning to rise. The secondary market for servicing rights remains alive but cautious in its pricing. 

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