Major banks, facing a slowdown in mortgage originations, are redirecting their focus to the auto loan market. This strategic shift leads to increased credit availability and easier underwriting standards for car buyers as banks seek alternative revenue streams.

Despite 15% tariffs on imported cars and parts, new vehicle prices have seen minimal pass-through to consumers. This surprising lack of inflation suggests strong offsetting deflationary pressures or a much longer-than-expected lag before costs are reflected in sticker prices, challenging conventional economic models.

Despite new tariffs on vehicles and parts, consumer prices have remained stable. Manufacturers are passing costs to dealers via higher invoice prices, and dealers are accepting lower profit margins rather than raising sticker prices for customers.

Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

Over 15 years, auto loans transformed from the best-performing loan product to the riskiest. This shift is driven by a "double whammy" of soaring vehicle prices—which outpaced even mortgage growth—and rising interest rates, compounded by overlooked costs like insurance and repairs.

Rising delinquencies in subprime auto are not a sign of a uniformly weak consumer. The underperformance is largely confined to loans originated from 2022-2024, which were impacted by a unique combination of inflated used car prices and sharply higher interest rates, leading to strategic defaults.

The bond market is a better indicator for mortgage rates than the Fed. The current spread between 5-year and 10-year Treasury notes implies that investors expect the 5-year note's yield to be 100 basis points higher in five years than it is today. Since mortgage rates are closely tied to these yields, this suggests a potential for higher, not lower, mortgage rates in the medium term.

New regulations like the Basel Endgame are expected to give banks more capital and regulatory clarity. This will encourage them, as the largest mortgage investors, to resume buying mortgages, tightening the 'spread' component of mortgage rates and thus lowering borrowing costs.

When a steepening yield curve is caused by sticky long-term yields, overall borrowing costs remain high. This discourages companies from issuing new debt, and the reduced supply provides a powerful technical support that helps keep credit spreads tight, even amid macro uncertainty.