"The big question in 2025 has been who would win the war with the bond market: those who believed rates had to go higher due to inflation, deficits, treasury supply and a host of other reasons? Or, would it be the camp that said the bond market will weigh softer labor data the way it has in the past few years, no matter where the inflation growth rate was?"
"As I write this article, the 10-year yield stands at 3.99%. Last year at this time, it was at 4.35%, while mortgage rates were at 7%. This year's mortgage pricing is significantly better but why? The key factor is that mortgage spreads have improved in 2025. In fact, if any of you see a mortgage spread on Halloween, give them a hug and give them an extra treat as they are the unsung hero for housing this year."
"Without the labor data getting softer and mortgage spreads improving as they should have, we wouldn't be near 6% today or even below 6% for those homebuyers who go with ARM loans, as short-term rates have driven those rates lower too. We have a Fed meeting tomorrow, and traditionally, Fed Chair Powell tends to get quite irritable during these press events. With bond yields under 4% and inflation 1% above the target, he often uses this opportunity to adopt a more hawkish stance."
A debate emerged in 2025 about whether inflation, deficits and Treasury supply would force higher rates or whether the bond market would prioritize softer labor data. The 10-year Treasury yield fell to 3.99% from 4.35% a year earlier. Mortgage spreads narrowed substantially in 2025, materially improving mortgage pricing and preventing rates from returning to 2023 highs above 7%. Softer labor metrics and lower bond yields helped push mortgage rates near or below 6% for some buyers, especially with ARM options. A Fed meeting approaches with potential hawkish commentary despite yields under 4% and inflation above target.
Read at www.housingwire.com
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