Mortgage rates are driven by the bond market and bonds have been under tremendous pressure due to inflation. As such, when a major inflation report comes out hotter than expected, bonds suffer and rates rise. When other reports show inflation moderating, bonds recover and rates fall. Today’s relevant inflation data came from Europe, but European bonds care about inflation too! Moreover, big swings in European bonds tend to affect US bonds. On balance, the inflation data was better than expected. Bond yields fell throughout the day, finding some help along the way from central banker comments and a some other downbeat data. Most of the bond market improvement happened after mortgage lenders released their initial rates for the day. Most lenders therefore issued mid-day reprices for the better. In other words, they lowered their rates by just a bit. Improvements would have been bigger were it not for the looming inflation data in the U.S. tomorrow morning. One of the two biggest monthly inflation indices will be released at 8:30am ET. If it’s hotter or cooler than expected, rates could rise or fall rather abruptly. The bigger the beat/miss (versus economists’ expectations) the bigger the potential movement.