Fantastic News — Inflation Is Down… Rates Don’t Care 

Market Reversal: Rates Spike Despite Good News 

This week was the polar opposite of last week. Rates, which improved following broad tariff announcements and a “Risk-Off Trade,” have now spiked back up, nearing the highest levels of 2025. The movement felt similar to March 2020, when the country entered COVID. Extreme market volatility triggered margin calls, which became a major factor in worsening rates despite bond-friendly economic data and stock market turbulence. 

Margin Calls: How Leverage Can Disrupt Rates 

Let’s take a quick look at margin calls. Investors often use leverage to amplify their investments. For example, someone with $1M might borrow $10M to invest, using 10X leverage. This strategy also multiplies risk. A 10% drop in value can wipe out their original $1M. At that point, lenders issue margin calls, demanding immediate repayment or additional funds. 

To meet these calls, investors are often forced to sell their most liquid assets, like U.S. Treasuries and bonds. This selloff drops bond prices and raises rates. That dynamic helps explain why rates rose even as the economic news looked positive. 

Treasury Auctions and Inflation Reports Show Progress 

Despite the volatility, there was rate-friendly news this week that could support lower rates once the markets stabilize. 

• 10-Year and 30-Year Treasury Auctions both showed strong demand, which is a positive signal for rates. 

• The March Consumer Price Index (CPI) and Producer Price Index (PPI) both reflected cooling inflation. 

Still, the Federal Reserve (Fed) may remain cautious, given concerns that new tariffs could drive inflation back up. 

CPI Recap: Gas and Airline Fares Drop 

• Headline CPI for March declined 0.1%, versus an expected 0.1% increase. 

• Year-over-year CPI fell from 2.8% to 2.4%, beating expectations. 

• A 6.3% drop in gas prices helped drive the decline. 

• Core CPI (excluding food and energy) rose 0.1% — or just 0.06% unrounded — well below expectations. 

• Core CPI YoY fell from 3.1% to 2.8%. 

• Notable price declines included: 

• Airline fares down 5.3% 

• Used autos down 0.7% 

• Motor vehicle insurance down 0.8% 

PPI Recap: Big Miss Signals Cooling Inflation 

• Headline PPI fell 0.4%, despite an expected 0.2% increase. 

• YoY PPI rose 2.7%, down from 3.2%. Forecasts had expected 3.3%. 

• Core PPI dropped 0.1%, against an expected 0.3% increase. 

• Core YoY PPI fell from 3.5% to 3.3%, while markets anticipated a rise to 3.6%. 

Looking Ahead: Positive Signs for April’s PCE 

As we’ve discussed in past weeks, PPI shares components with the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, due out April 30. About 12% of PCE is derived from PPI, and February’s shared components saw large declines. 

Combined with the soft CPI report, this bodes well for a cooler PCE reading — assuming markets settle down and tariff impacts remain contained. 

Next Week: Lighter News, Key Housing Data 

Here’s what to watch next week: 

• Wednesday: Retail Sales, 20-Year Treasury Auction, NAHB Housing Market Index  

• Thursday: Initial Jobless Claims, Housing Starts and Permits  

• Friday: Bond markets close at 2 PM Thursday and remain closed Friday for the Good Friday holiday