Insights 
VT 
In April 2025, US housing starts were reported at 1.361 million, slightly below the forecast of 1.365 million. The previous month’s housing starts were 1.324 million.
Building permits for April measured 1.412 million, falling short of the expected 1.450 million. In the prior month, permits were reported at 1.467 million.
Housing Market Sentiment And Yields
The National Association of Home Builders’ sentiment reading recently matched its worst since 2022. Additionally, US 30-year yields have risen to 5% this week.
This recent batch of housing data reveals a mild softening, particularly in forward-looking indicators. The small shortfall in housing starts points to a market where construction momentum has not picked up in line with expectations. The fact that last month’s figures were revised upward suggests that recent activity might not be as sluggish as it first appears, but the current month’s undershoot still weighs on near-term projections.
More pressing is the drop in building permits, which tends to precede actual building activity by one or two quarters. The lower-than-expected permits signal caution among developers before committing capital, especially when borrowing costs are this high. That hesitation has spilled over into sentiment, with builders now more pessimistic than at nearly any point in the past three years.
Then there’s the move in 30-year yields hitting 5%. We see this not just as a simple rise in long-end rates, but as a reflection of fixed-income markets recalibrating their view on inflation’s persistence and the path of policy. Those borrowing for long-term projects will feel the pinch most acutely. It now costs more to roll existing debt, especially for leverage-heavy players who can’t wait for lower rates.
From a trading perspective, rate-sensitive instruments are showing higher sensitivity to this type of data, even if the misses are small. The breadth of response in housing-related equity names and rate futures has widened, indicating that markets are reassessing risk across multiple assets rather than focusing on the headline prints alone.
What caught our attention was the narrowing gap between monthly starts and permits. When permits fall faster than groundbreakings, it’s usually a signal that activity is likely to cool further in the months ahead. This isn’t the kind of dislocation that resolves immediately—it suggests a drag developing in future construction flows rather than a sharp shock.
The Market Outlook
With long-end rates now at 5%, we have to adjust our expectations about where implied volatility might head next across the yield curve. Positioning reflects that fear—OTM payer skew has risen in recent sessions. In terms of options pricing, the belly of the curve is carrying more premium than previous weeks, hinting that traders expect movement in mid-duration instruments too.
Looking ahead, we’re likely to see more two-way action depending on how inflation and employment data come in. If consumer borrowing weakens along with housing, fixed income longs may test the patience of the shorts. But until then, the steeper curve is favouring steepener trades, particularly through 2s/10s and 5s/30s expressions, where funding cost considerations are becoming more visible.
It’s not just about the macro signals. The combination of soft permits, poor sentiment, and high rates makes a dent in demand. Homebuilders aren’t just reacting to the cost of debt—they’re also reading forward-looking demand from banks and buyers, both of whom are turning more defensive.
We recommend staying alert to any shifts in mortgage applications and secondary market flow. These indirect indicators often front-run what we eventually see in the official permit and start figures. Given the environment, even smaller disappointments in data don’t get ignored. They feed into a broader narrative about where growth risks are shifting, with construction being one of the first real-economy sectors to show its hand.
It’s also worth noting that any signs of tightening labour in the construction space would undercut the case for easing, even if housing data softens further. So far, we haven’t seen that—but it remains a sensitivity worth monitoring in expectations pricing.
Trading desks will need to stay nimble and less reliant on static calendar spreads. Tactical flexibility and quick recalibration based on realised data will produce better outcomes under these conditions.
