Mortgage market dashboard

U.S. Treasury yields are edging modestly higher Friday morning after pulling back from multi-decade highs late in the week, as a well-received 30-year auction Thursday helped stabilize the long end of the curve. Oil prices are retreating after President Trump stated the U.S. would not attack Iran before November midterm elections, reducing a key geopolitical risk premium that had been pressuring yields and inflation expectations. The mortgage market enters the session with the 30-year fixed rate at its highest level since November 2023, following seven consecutive weekly increases, as affordability conditions and application volumes continue to deteriorate.

Long-dated Treasury yields pulled back from multi-decade highs after Thursday's 30-year auction drew strong demand at secondary market levels, extending a week that also included a solid 10-year auction. Friday morning, yields edged modestly higher again but remained well below the week's peaks. The 10-year yield had reached approximately 5.28–5.30% mid-week before the auction-driven rally. The bond selloff earlier in the week was attributed in part to rising term premium, fiscal deficit concerns, and hawkish Fed minutes. The WSJ reported Friday that the contagious bond selloff may be losing momentum, with the market quirks — including MBS convexity hedging and Treasury futures extension — that deepened the move appearing to run out of steam. Upcoming Treasury bill auctions are scheduled for the week of October 13.

Agency MBS spreads have been volatile alongside the broader rate selloff. The Fannie Mae 30-year current-coupon spread to the 5/10-year Treasury blend stood at approximately +127 basis points as of Thursday's close, having widened to +130 — the highest in more than six months — earlier in the week before partially recovering. Rate volatility, as measured by the MOVE Index, remains elevated, which is weighing on MBS relative value. BMO strategists expect MBS prepayments to slow an additional 5–10% in October as rates continue rising and turnover declines. Brean Capital noted the pool of refinanceable conventional loans has collapsed to roughly $21 billion from $1.2 trillion in February. The WSJ reported Friday that MBS convexity-driven hedging flows that had been amplifying the bond selloff may be diminishing.

The Fed's posture remains clearly hawkish following the September FOMC meeting, at which all 19 officials supported a rate hike. Minutes released Wednesday showed several officials viewed current rates as not or only mildly restrictive, and some saw inflation risks skewed to the upside. St. Louis Fed President Musalem on Thursday signaled further tightening over the next six to nine months but stopped short of endorsing an October move. Governor Waller said additional hikes are likely but that timing is flexible and consecutive meeting hikes are not required. Governor Bowman has signaled a preference to hold at the late October meeting. Fed Chair Warsh's August Jackson Hole remarks — described by BofA as giving markets room to test higher yields — continue to shape market expectations for a durably elevated policy rate.

September Nonfarm Payrolls (Released) Actual: 29,000; Consensus: ~90,000; Prior: Revised lower. September payrolls badly missed all estimates in a Bloomberg survey, with the unemployment rate rising to 4.2%. Bond markets initially priced in a later start to further Fed hikes, but yields rebounded as the broader hawkish Fed narrative remained intact. The weak print has not materially altered market expectations for additional tightening. Weekly Initial Jobless Claims (week ended Oct. 3) (Released) Actual: 197,000; Consensus: 200,000; Prior: 199,000 (revised). Claims fell for the fourth straight week below 200,000, the lowest level since July, indicating layoffs remain limited. The resilient labor market data is consistent with the Fed's view that the economy can withstand further tightening. NY Fed Consumer Inflation Expectations (September) (Released) Actual: 3.9% (1-year ahead); Consensus: Unavailable; Prior: 3.6%. One-year inflation expectations rose to the highest level since May 2023, reinforcing the Fed's concern about persistent inflation and supporting the case for additional rate hikes. The deterioration in near-term inflation expectations is a headwind for bond markets and mortgage rates. September Unemployment Rate (Released) Actual: 4.2%; Consensus: 4.1%; Prior: 4.1%. The unemployment rate ticked up slightly, partly reflecting a growing workforce. The modest rise has not shifted the Fed's inflation-focused tightening posture.

Middle East tensions remain a primary market risk. Iran and Houthi forces conducted attacks on Persian Gulf oil infrastructure and tanker routes near the Strait of Hormuz on Wednesday night and Thursday morning, sending Brent crude surging more than 4% Thursday. Friday morning, oil retreated after President Trump stated via social media that the U.S. would not attack Iran before November's midterm elections, citing 'productive discussions' with Tehran. Separately, Hurricane Isaias — a Category 2 storm — is pushing toward the U.S. Gulf Coast, causing offshore oil production to plummet and threatening refineries and chemical plants. The combination of Middle East supply risk and Gulf storm disruption has kept energy markets volatile, with direct implications for inflation expectations and the trajectory of Treasury yields.

The primary shift overnight is a pullback in oil prices after President Trump's social media statement ruling out a U.S. attack on Iran before the midterm elections, which had driven Brent above $106 Thursday. That geopolitical de-escalation is supporting risk assets and providing modest relief to bond markets. Treasury yields are edging slightly higher Friday morning after Thursday's auction-driven rally, but long-dated yields remain well below the multi-decade highs reached earlier in the week. The MBS market enters Friday with spreads near +127 basis points on the Fannie Mae 30-year current coupon, and the broader bond selloff dynamic appears to be losing momentum according to WSJ reporting.

30-Year Fixed Mortgage Rate Rises to 7.40%, Highest Since November 2023 (High): Freddie Mac reported Thursday that the average 30-year fixed mortgage rate rose to 7.40% for the week ending October 8, up from 7.28% the prior week and marking the seventh consecutive weekly increase — the longest such streak in three years. The MBA's separate survey showed the 30-year rate at 7.49% for the week ended October 2. The rate is approximately 110 basis points above year-ago levels. On a $400,000 loan, the seven-week run-up translates to roughly $200 more per month in payments, according to Barron's.

MBA Mortgage Applications Fell 4.2% for Week Ended October 2 (High): The MBA's mortgage applications index declined 4.2% for the week ended October 2, following a 6.0% drop the prior week. Purchase applications fell 2.1% and refinance applications dropped 7.5%. Refinances accounted for 37.0% of total applications, down from 38.3% the prior week. VA refinance applications fell 16.9%. The sustained decline in application volumes reflects the impact of rising rates on both purchase demand and refinance activity.

Housing Market Described as Effectively 'Frozen' as Affordability Nears Post-Financial Crisis Lows (High): J.P. Morgan's John Sim, Head of Securitized Products Research, described the U.S. housing market as effectively 'frozen,' with high mortgage rates, a shortage of homes, and weak income growth combining to suppress activity. Affordability is near its worst level since the global financial crisis. The WSJ reported Friday that while the rate environment is pressuring the overall market, some sellers in certain metro areas are beginning to cut asking prices, offering prospective buyers a degree of relief.