Bonds made a forty-cent round trip and still finished lower. UMBS 5.5 closed at 97.14, down 0.20 on the day, the 10-year Treasury at 4.992%, up two basis points, and the average 30-year rate moved up to 7.17% — a new long-term high.
The day ran in three acts. Bonds opened weak and got weaker: the 10-year crossed 5% mid-morning, printing 5.003%, and UMBS 5.5 fell to 97.02, thirty-two cents below Friday's close. Oil was up roughly $4 from Friday and the selling accelerated once the round number gave way. Then it turned. By early afternoon the 5.5 was at 97.42 — up eight cents on the day, a forty-cent swing off the low — and the 10-year was down at 4.938%. The last two hours undid most of it. The 5.5 closed at 97.14 and the 10-year at 4.992%.
The reversal was about oil, not safety. Headlines crossed that Iran and the U.S. were moving toward a deal, and oil gave back most of the morning's increase. That pulled the inflation impulse back out of the bond market — the same driver that hurt in the morning, running the other way. Earlier today I described that move as a flight to safety. That was backwards: war risk receded, it didn't rise, and the channel was the oil price, not a rush into Treasuries. The distinction matters for what comes next. A rally built on a de-escalation headline unwinds if the headline does, and this one already gave back three quarters of itself before the close.
Fed pricing didn't budge on any of it. Odds of a hike Wednesday firmed slightly as the day went on, even while bonds were recovering, and the curve shows why. The 2-year Treasury closed up 0.029 while the 30-year closed down 0.014 — the short end repricing the Fed's own horizon while the long end, where mortgages live, absorbs almost none of it. That is a hike being priced, not an inflation scare. The live debate this week is hold versus hike, not hike versus cut, and at least one bank economist is publicly calling Wednesday a close call.
For borrowers, the number that matters is 7.17%. That is the highest average 30-year rate since January 2025, and today it came with more lender-to-lender variation than usual: bonds were at their worst levels right when most lenders publish morning sheets, and only some of them reissued when the market improved. A few repriced worse again into the close. The 10-year tested 5.00% and closed back under it, which is the level to watch this week. The FOMC meeting starts tomorrow with the decision Wednesday afternoon, and today's two-way action is a fair preview — volatility is elevated, war headlines cut in both directions, and Wednesday can break either way.
— David Burson, NetRate Mortgage