Slightly Stronger But There's a Catch
Bonds had a decent day with MBS up more than a quarter point and 10yr yields down 3bps to 4.54+. While that adds some emphasis to the rejection of a technical breakout above 4.59%, we can't really conclude that it happened for any bond-specific reasons. In fact, we're forced to conclude that bonds are on auto-pilot for the most part and that oil prices are the key input for now. As was the case in June, we know this correlation isn't permanent, but it's been highly reliable during this resurgence of U.S./Iran tensions.
Econ Data / Events
Jobless Claims (Jul)/04
215.0K vs 218K f'cast, 215K prev
Market Movement Recap
09:21 AM Fairly flat overnight and just a hair stronger now. MBS up 2 ticks (.06) and 10yr down just under 1bp at 4.566
12:35 PM Additional gains, still correlated with oil prices. MBS up 9 ticks (.28) and 10yr down 3bps at 4.543
03:35 PM Off best levels, but still stronger. MBS up 11 ticks (.34) and 10yr down 3bps at 4.543
Mortgage rates were rapidly approaching 10-month highs as of yesterday afternoon. They managed a friendly bounce today, but it was fairly small with the average lender dropping 0.03% to 6.5% for a top-tier 30yr fixed scenario. One reason for caution is that the rate improvement looks to be dependent on oil price volatility after this week's resurgence in U.S./Iran tensions. Oil finally moved lower today. In general, lower oil prices imply lower inflation pressure, and lower rates. This isn't always the case, but there are times (like this week and many of the weeks since the start of the Iran war) where oil prices and rates are clearly correlated. In the bigger picture, rates are drifting sideways in a narrow range near 10-month highs as they wait for more concrete inspiration. [thirtyyearmortgagerates]
This morning, we head to Los Angeles, the site of the fires in the Pacific Palisades area in January 2025. Governor Gavin Newsom recently announced that FEMA approved California’s request to extend critical disaster assistance for Los Angeles fire survivors. More than 18,000 structures were destroyed. Seventy percent of those families don’t have a place to live yet. On the flip side, a white paper from the Mortgage Bankers Association (MBA) argues any shortages could invert within the next decade and that the reversal carries direct consequences for mortgage brokers and loan officers: "Implications of a Persistent Slowing in Housing Demand." It projects that housing supply could expand by 10.6 million to 14.6 million units between 2026 and 2035. Gee, if U.S. fertility is dropping, and immigration numbers are going down, has the problem shifted from a lack of supply to a lack of demand for housing? What about President Trump called all the top 15 homebuilder CEOs in for a meeting earlier this year and explicitly threatening “either start more homes or prepare for changes you won’t like in the housing finance system”? Pay attention out there! Speaking of… On today’s Big Picture, at noon PT, Mark McArdle, SVP of Public Policy & Regulatory Affairs at Newrez and Bob Niemi, Director of Government Affairs for Weiner Brodsky Kider PC, will answer questions on the policy and regulatory issues shaping today's mortgage market: what should lenders watch? (Today’s podcast can be found here… this week’s ‘casts are sponsored by FICO. As the industry's most predictive credit score, FICO Score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. Today’s has an interview with FTI Consulting’s Creighton Oswald on how if capital treatment becomes more favorable, increased competition could drive aggressive pricing that benefits independent mortgage banks and borrowers while further compressing margins for warehouse lenders.)
Bonds are starting the day just a hair stronger versus yesterday's close and there are three ways to look at it. At the most basic level, the move is so small that it doesn't deserve any explanation (i.e. we're close enough to unchanged to say "nothing new is happening"). But given the recent resurgence of correlation between bonds and oil prices, that's probably today's warm bowl of porridge considering the almost 100% directional alignment overnight.
Finally, the most speculative and least defensible view is that bonds are finding technical support at the 4.59 which made our "key levels" list when it served as the stopping point for the biggest day of selling of the past few months on May 15th and was also the closing level on May 16th as well as yesterday's intraday high.
More War-Related Weakness, But With a Supportive Bounce
Bonds officially closed at the highest yields in more than a month. At one point just before the noon hour, the 10yr was just over 4.59, but ultimately moved back to 4.56. That's only about 1bp higher than yesterday's latest levels (which feels like a win compared to the mid-day trend). Oil prices and bond yields remain in a tight correlation, and once again, war-related headlines set the tone. The most notable among them was a Trump comment regarding the ceasefire being cancelled/over. As was frequently the case in the run-up to the signing of the MOU, it's hard to know which comments represent "tough talk" as opposed to legitimate shifts in policy and military activity. Trading levels reflect the same uncertainty (i.e. oil/yields are certainly higher, but also not nearly as high as they were in May).
Market Movement Recap
08:46 AM Weaker overnight after Trump says ceasefire is over. But not much weaker. MBS down 3 ticks (.09) and 10yr up less than 1bp at 4.561
10:44 AM MBS down a quarter point and 10yr up 3.4bps at 4.586
01:22 PM No major reaction to 10yr auction. MBS down 6 ticks (.19) and 10yr up 2.5 bps at 4.577
Mortgage rates have moved higher at a moderate pace over the past 2 days as tensions between The U.S. and Iran see a resurgence. As far as the underlying bond market is concerned, most of the damage was done yesterday. But today's news added emphasis when Trump declared the ceasefire to be over. Rates are based on bonds, but mortgage lenders prefer to set rates once per day and only change them if bonds make a big enough intraday move. That meant the average lender had to play some catch-up with bond market movement this morning. All that to say that bonds didn't have nearly as rough of a day today even though mortgage rates rose just a bit more than they did yesterday. Perhaps that offers some hint that the underlying market may be reaching some sort of supportive ceiling, but it really depends on exactly how much the war re-escalates. The average top-tier 30yr fixed rate is back up to 6.68%, matching its second highest level in more than 10 months. May 19th's level of 6.75% is the official 10-month high. [thirtyyearmortgagerates]
STRATMOR Group has opened participation for its 2026 Compensation Connection® Study, providing mortgage-specific insights into compensation components, incentive plan structures, compensation percentiles, and more. (Compensation Connection focuses exclusively on mortgage banking, with benchmark comparisons by lender type, size, region, and national averages, plus three-year trending for many metrics. This year's study includes four modules: Retail Sales, Consumer Direct Sales, Fulfillment, and Executive Management. Return your submissions to compconnection@stratmorgroup.com by August 15.) Today on L1’s Mortgage Matters at 11AM PT Flyhome's Tushar Garg will discuss his understanding of empathy and understanding customers' and stakeholders' challenges rather than only solving personal frustrations. Lastly, today at noon PT the Capital Markets Wrap, presented by Polly, the panel presents their understanding of how credit changes may impact investor’s appetite for MBS as well as FHFA Director Bill Pulte's proposed title insurance waiver initiative. (Today’s podcast can be found here… this week’s ‘casts are sponsored by FICO. As the industry's most predictive credit score, FICO Score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. Today’s has an interview with FICO’s Ethan Dornhelm on how credit score modernization is giving lenders and market participants the ability to evaluate long-term predictive performance and expand responsible access to credit while preserving safety and soundness.)
Iran-related headlines have jumped back to the realm of relevance this week and Wednesday morning's overnight session kicked things up another notch. Trump declared the ceasefire to be over and is currently saying peace deal negotiations may not even continue. Markets definitely reacted with oil and Treasury yields spiking overnight. The interesting part is the magnitude of the spike. It was roughly 4bps in terms of 10yr yields and almost half those losses were recovered over the following 2 hours. Oil prices rose roughly $3 and have dropped almost $2 since the initial spike. Bottom line: markets are trading the news, but with a grain of salt.
A longer-term chart puts recent moves in perspective.
The day's only meaningful calendar event is the 2pm release of the minutes from the last Fed meeting. Markets are curious to see "what's different" with this being Warsh's first meeting. At the very least, it would be hard for Fed minutes NOT to convey forward guidance as a side effect of normal Fed policy discussion.
Hormuz Back in The News
Iran has attacked a few cargo ships recently and there are repercussions. The peace deal looks to be on shakier ground over the past 24 hours with both sides talking tough on the internet. Just before 3pm, the U.S. referred to Iran's actions as unacceptable and revoked the license that allowed the sale of Iranian oil. Oil prices were higher all day, but especially after that news. Bond yields have been quick to reconnect with their old flame, exhibiting strong correlation over the past 24 hours. The net effect by 3:10pm was a 6.6bp rise in 10yr yields (4.536) and nearly a half point drop in MBS.
Market Movement Recap
08:36 AM Modestly weaker overnight with some pressure from Amazon bond announcement. 10yr up 1.8bps at 4.488 and MBS down 3 ticks (.09).
09:59 AM More selling (some related to 9:30am NYSE open and some due to Hormuz news). 10yr up 3.8bps at 4.508 and MBS down a quarter point.
01:29 PM 10yr up 5.3bps at 4.523 and MBS down 10 ticks (.31).
It's been a while since oil prices were the focal point of the interest rate conversation, but that recently familiar dynamic is once again playing out. The U.S./Iran peace deal is on increasingly shaky ground and the ability for oil to flow through the Strait of Hormuz has been increasingly compromised over the past 24 hours. Most recently, headlines suggest the U.S. is withdrawing authorization for Iran to export oil after Iran's recent attacks on cargo vessels. Rising oil prices imply higher inflation. Higher inflation leads to higher rates, all else equal. At the time of this article, the net effect on mortgage rates is modest with the top tier 30yr fixed rate only up 0.04% for the average lender. That said, many lenders may issue late day changes that push rate even higher. [thirtyyearmortgagerates]
