Falling oil prices pulled bond yields lower from open to close, and the 10-year Treasury finished at 4.620% — down 7.7 basis points and its lowest level in about a week. The average top-tier 30-year fixed ended at 6.74%, off 0.04% on the day.
This was a one-direction session. The 10-year was already down 3.9 basis points at 9:32 AM, sat at 4.642% by early afternoon, hit 4.632% at 3:49 PM, and closed at its best level of the day. Mortgage bonds tracked it point for point: UMBS 5.5 gained 0.42 to close at 99.69, and the 6.0 coupon added 0.29 to 101.61. Across the Treasury curve the story was the same — the 2-year fell to 4.172%, the 5-year to 4.326%, the 30-year to 5.156%. Nothing gave anything back.
Energy did the work. Oil sold off sharply on Middle East headlines, and bonds followed, because cheaper fuel takes pressure off the inflation numbers that set rates. Worth keeping in perspective, though: oil is sitting near the middle of its August range while the 10-year is near the bottom of its own. The bond market is pricing more relief than oil alone accounts for, which means part of today's move rests on sentiment rather than fundamentals — and sentiment reverses faster than data does. The other tell was what got ignored. Case-Shiller showed home prices up 2.1% year over year in June against a 1.7% forecast, a genuinely hot print, and the FHFA index came in flat for the month. Bonds rallied anyway. When a market shrugs off data it wouldn't normally like, it's telling you where its attention actually is.
For borrowers, 6.74% is the lowest average in roughly a week, and because rate sheets price off the prior session's close, Wednesday morning's pricing is where today's improvement actually shows up. The week's real test comes at 8:30 AM Eastern Wednesday: PCE inflation, the Fed's preferred price gauge, alongside durable goods. Jobless claims follow Thursday. PCE is the only release this week large enough to change the conversation around the September 17 Fed meeting. Today's gains came from geopolitics and fuel prices, not from the economy — and moves built on headlines can unwind on the next headline just as quickly.
— David Burson, NetRate Mortgage