Bonds extend modest gains for a second straight session as the 10-year Treasury eases to 4.63% and mortgage rates slip to 6.80% — FOMC statement Wednesday and PCE Friday are the twin catalysts that will define near-term direction.
Mortgage rates opened Tuesday at 6.80%, down one basis point from Monday's 6.81%, as bond markets continued their tentative recovery from last week's surge. UMBS 5.0 is up about 9 ticks to 97.06, and the 10-year Treasury yield has drifted to 4.63%, off the 4.70%-plus levels that drove last week's rate spike to the highest in over a year. No economic data crossed the wire this morning — the pause is deliberate. Markets are holding position ahead of two consequential releases arriving within 72 hours.
Last week's rate move was not random noise. Bond markets briefly priced in the possibility of a Fed rate increase at this week's meeting — extraordinary for a market that had spent most of the past year debating how soon cuts would arrive. That anxiety drove the 10-year yield through 4.70% and pushed the 30-year mortgage rate into the high 6.80s before touching 6.90%. Tuesday's modest pullback in yields suggests some of that anxiety is fading, but bonds are not rallying hard. They are grinding lower with caution, waiting to hear from Chair Kevin Warsh, who wraps his second FOMC meeting Wednesday, July 30. The market is not pricing a policy move, but the statement's language — how Warsh frames inflation patience and the balance of risks — will drive the bond market's immediate reaction. Friday's June PCE report will either cement or reverse whatever move follows Wednesday.
For borrowers, the math on today's rate is concrete: at 6.80% on a $400,000 loan, the monthly principal-and-interest payment is approximately $2,608 — about $53 per month less than at last week's high near 6.90%. That's meaningful over the life of a loan, but the more important number is directional. Borrowers who have been watching from the sidelines after last week's jump may want to stay close to their loan officer through Wednesday afternoon. The FOMC statement drops at 2 PM ET, and bond markets typically move fast.
FOMC policy statement: Wednesday, July 30, 2 PM ET. June PCE inflation report: Friday, July 31, 8:30 AM ET. These two releases will likely set rate expectations through August.
— David Burson, NetRate Mortgage