How mortgage rates are reacting to a surging 10-year yield

HousingWire

jump in the 10-year yield and what it means for mortgage rates.  Related to this episode:  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  The Top 5:  Mortgage rates are headed higher as the 10-year yield surges https://www.housingwire.com/articles/mortgage-rates-are-headed-higher-as-the-10-year-yield-surges/  Why a 2008 housing crash can't happen again https://www.housingwire.com/articles/why-a-2008-housing-crash-cant-happen-again/  UWM CTO on how AI is changing mortgage underwriting, servicing https://www.housingwire.com/articles/uwm-in-house-ai-mortgage-underwriting-servicing/  Rocket sues UWM for $100M over nonsolicitation pact https://www.housingwire.com/articles/rocket-sues-uwm-100m/  Positive housing demand leads to inventory almost going negative YOY https://www.housingwire.com/articles/positive-housing-demand-leads-to-inventory-almost-going-negative-yoy/  To learn more about Total Expert click here. https://www.totalexpert.com/  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about rising

00:1410-year yields and how that is going to raise mortgage rates. I want to thank our sponsor,

00:18Total Expert, for making this episode possible. Before we dive into that very important discussion,

00:24I want to recap the top five news stories on HousingWire.com over the past 24 hours. We're

00:30recording this on Friday morning, and I just published Logan's latest article,

00:33Mortgage Rates Are Headed Higher as the 10-Year Yield Surges. It's only been up a few minutes.

00:38It's already trending, so I guarantee it will be our top story before the day is out.

00:42What we see from the last 24 hours at number five is House of Representatives spares build to rent

00:48from the institutional investor ban, which is huge for the builders in our audience as we watch the

00:53Road to Housing Act make its way through Congress. Next, we have the latest housing market tracker

00:58of Logan's, still trending even as we get fresh data today for the next tracker.

01:03Coming in at number three is Rocket Suze UWM for $100 million, a big story from Thursday.

01:09Next, we have the latest housing market tracker still trending even as we'll get fresh data today

01:14for the next one. Coming in at number three is Rocket Suze UWM for $100 million, a big story from

01:20Thursday. Followed by number two, UWM's Jason Bressler says in-house AI agents are changing

01:27underwriting and servicing work. That's an exclusive interview by reporter Sarah Wolak from the UWM

01:33live event in Detroit this week. At number one, we have Logan's article with the headline,

01:38Why a 2008 Housing Crash Can't Happen Again, a timeless topic, although like I said, I believe his

01:44latest article is going to top that before the day is out. We're linking those top articles in the show

01:49notes so you can find them easily. And if you aren't a subscriber yet, you can use the code

01:54PODCAST20 to get 20% off of a subscription. Okay, let's dive into today's topic. Logan,

02:01welcome back to the podcast. It is wonderful to be here. Of course, it's Friday morning and

02:08wow, this is one of these Friday mornings you kind of live for. Of course, I'm sure everyone in the

02:15real estate industry, it's not the best Friday morning. But for someone like me,

02:22when we wrote that article, I think two months ago saying that the 10-year yield, if this

02:27conflict escalates and it keeps on going longer and longer, we should target 460 on the 10-year

02:33yield. 450 to 460 looks about right with escalation. That has not happened. There have been many a times

02:41where we got the 10-year yield dropped down to 4.24 with any headlines of ceasefires or anything like

02:47that. But finally today, it was the first time that we saw an escalation in yields. And the escalation

02:57in yields so far this morning has not created yearly highs in mortgage rates yet. Why?

03:03How did mortgage spread? Mortgage spreads are doing their thing again, which is very complicated.

03:08We're going to get into that today as well. But the bond market is having enough of this

03:15prolonged conflict. And it's correctly pricing yields higher because the Fed is now priced for a rate hike

03:24in 2027. So as inflation rises, the Fed itself is not talked about doing a rate hike, but the market

03:33is already pricing it for them. Everything today looks right to me in that context with an escalating

03:41conflict. But we are getting also closer to June. As oil reserves start to dwindle down,

03:49production slows down, capacity storage goes up. It gets really dicey starting the second week of

03:56June, especially if this goes all the way to September. So this is just the start of this,

04:01which I really kind of think of this as a third phase of this conflict. And it just gets more

04:06interesting because we're finally in that 450 to 460 range where last year with Godzilla tariffs,

04:12that got the White House attention. Is that going to be something that happens again?

04:16So you said from the beginning with this conflict that like the longer it goes on,

04:20you know, if it was that quick in and out like happened in Venezuela, totally different story.

04:24But from the beginning, you're like, hey, if this goes past, was it March 22nd, 27?

04:30March, yeah. March 21st. If this goes past March 21st, something went wrong because this isn't a quick

04:35thing. And this has the potential to escalate longer and longer than people think.

04:40But so far up until even, you know, last night, this early morning's hours today,

04:47we hadn't seen it really impact the 10-year yield. So from your perspective, are we at a tipping point?

04:55Like, are you like now it's going to be start pricing and mortgage rates are going to reflect that?

04:59So we were ranging close to like that key technical level, that 445, 448 for some time.

05:07We tested it four times and it finally broke. To me, we are now starting to price rate hikes

05:14into the system with inflation higher. Okay. This looks perfectly normal in an area where

05:20before the conflict even started, inflation was rising. Now you have embedded inflation. Now

05:26you have diesel prices up. Now it's going to impact food costs. So when you have all of this and

05:32you

05:32have Fed governors telling you day in and day out now that the longer this goes, the more problematic

05:39this is. Because even if the straighter form was open today, everything was clear, good.

05:43Everybody agrees with it. It takes months to get the supply, but now we get into, we're closer to June

05:50now and it gets more problematic. Like what if you don't get anything fixed? What if this goes on to

05:56August and September? You know, it can be a bigger problem than people think. So bond yields had been

06:03suppressed because we have these headlines or we've got a deal. We don't have a deal with bond yields.

06:07You know, but for now, this to me looks correct. This to me looks like, you know, the bond market

06:13is okay. We've finally given up. We're here. The question is what happens next? That's all up to

06:21the White House and in Iran on, you know, how long does this conflict go on? Because without this

06:28conflict in play, we're not necessarily talking about rate hikes. We're talking about what the Federal

06:36Reserve started the year off. We're waiting until the one-off pair tariffs inflation winds itself out

06:43and we kind of go to the second half of the year. That is no longer in play now as

06:48this conflict has

06:49continued all the way to the May 15th, as we talk about this morning. Okay. So one of the points

06:54that

06:54you make in the article, which I thought was so interesting, is when Godzilla tariffs, you know,

07:00when the 10-year-old got to a similar level or at 5% right after Godzilla tariffs, that caught

07:07the attention of the White House and they were able to do something. The problem here is it's not clear

07:13what the White House can do unilaterally to change what's happening right now.

07:17So 450 to 460, Godzilla tariffs had an 18 to 19% drawdown in stocks. That wasn't enough to get

07:24the

07:24White House to budge. But last year, 450 to 460 10-year yield got the White House to have

07:32Besant come into the White House, kick Peter Navarro out of the White House, close the door,

07:38lock it, tell the, you know, Secret Service, do not let this man in. They go to Trump and they

07:44say,

07:44Trump, you've got to tweet this out because the markets are like, you know, it's... When we talk

07:49about the Trinity impact in 2024, we said that if Trump's going to do this trade war, he needs lower,

07:57he needs a lower dollar, he needs lower energy prices and he needs lower yields. Okay. He had

08:03all those things in play in 2026. They've all reversed in an aggressive fashion. The only thing,

08:11the only reason mortgage rates aren't even above 7% or at a yearly high is because the spreads are

08:15better. Defensive mechanisms by the purchase of more or the announcement of the purchase of

08:21mortgage-backed securities. That's it. Now, mortgage spreads traditionally get better at this

08:26stage of the cycle anyway, but defensive mechanism, now you have this, what do they do? Because I mean,

08:33what if Trump says, okay, we're done, we're gone, we're leaving, and then Iran goes, oh, no, we're not,

08:39we're controlling everything still. So it's one of these things where when you, if you don't have full

08:44control of all the variables, then you're rolling the dice on a conflict. With tariffs, you can

08:51literally say on Friday night, we're going to put 300% tariffs on everything from Canada, and Sunday

08:58night, you can take it off. This is a little bit different, right? Because you have a conflict going

09:03in. And of course, Iran has a lot of economic pain because of this as well. And they're just basically,

09:11Trump is trying to squeeze them at this stage. But it gets, you don't know now, right? It's May 15th.

09:19So it's a little bit different. And going out in the future, because so much right now, I think,

09:24is priced in for the first break hike. Like the 10-year yield at 460 was my peak. 6.75

09:30% was my peak

09:31forecast for rates. If it goes anything above that, something went wrong, right? We know what went wrong

09:37here this year. The conflict, it's not just a conflict for the first few weeks. The conflict

09:43is now, can be lasting for a few more months. But with all that said, we sit here today. The

09:51last

09:51time I checked, the 10-year yield is at 459. Last mortgage rate pricing was 6.62. Wasn't even at

09:58a

09:58yearly high yet. Hug a mortgage spread, take a selfie with it, buy it a drink, whatever it is,

10:04it has literally kept the things somewhat in check. Because this was the whole trying to

10:11emphasize why spreads were going to be really important this year. And today, just like I said

10:16this a few other times, today's a really good day to show an example. Things could be a lot worse

10:22if mortgage spreads were back. And this goes into a lot of questions. A lot of people go,

10:26why aren't mortgage spreads getting worse right now? Okay, that's the question I had. I know we got

10:31this question when we did our late night with Logan and Sarah at the gathering. It was really

10:36fun. We had audience questions. And one of them was about how spreads work. But one of the things

10:40that's confusing to me is like, if we have all this volatility on the world stage with all these

10:45different things, why isn't that being expressed in the spreads? So mortgage spreads get worse when

10:51people think there's a risk to investors. So when rates go up higher, when the Fed starts hiking rates,

10:57mortgage spreads get worse. When there's market drama, and there's a risk of the economy tanking

11:04in a very short amount of time, spreads get worse. So you see that the great financial recession spreads

11:10got worse. The COVID recession spreads got worse. We've had previous cycles where we go into the

11:17recessions and the spreads get better as the Fed has started cutting rates and everything. So what's

11:22happening right now is that the market still isn't pricing in any recessionary data. It's just

11:29pricing inflation rising. So the spreads actually were getting worse in February before the conflict

11:35even started because its job is to compress volatility. So spreads getting worse when yields

11:42were going down aggressively makes sense. Now, a lot of people are saying, oh my God, here we should

11:46get 3%. No, having 3% spreads, how we track spreads, it's really rare. We didn't have it in COVID.

11:52We didn't have a great financial recession. Last time we had it was like in 1986. It's been a while.

11:58So don't think of the spreads as going up in a vertical fashion. But for example, let's say if

12:05we had nine voting members of the Federal Reserve basically says, we want to hike rates aggressively

12:12to combat the inflation of the supply shock, right? That is something that can make the spreads worse

12:19because then now you're thinking oil's up, inflation's up, energy costs are up, and the Fed is

12:24hiking rates. None of those things are good for the economy. That is a risk. But as of right now,

12:31the spreads aren't getting as bad as people think of us right now. Nobody's pricing in a recession.

12:36And this is just basically, you know, we're putting in a rate hike into the equation rather than rate

12:42cuts. Oh boy, Kevin Warsh, man. Kevin Warsh might be a descending vote in this first Fed meeting when

12:50that happens. But that's the reason why spreads can get, you know, with market volatility can get

12:55higher, but not to the levels that people think what they saw in 2022 or in COVID or in the

13:03great

13:03financial recession where spreads go vertically higher. And the last example we could use is 2023.

13:092023. Spreads were getting better in 2023 noticeably. And then the Silicon Valley banking crisis happened.

13:17And then the Silicon Valley banking crisis happened with the Fed still raising rates after the Silicon

13:23Valley banking crisis started. That can make the spreads go up. Now here, we don't have that. We have a

13:29lot of rate cuts in the system. And we have hawks talking about, you know, which maybe the next move

13:36should be a hike or anything, but not quite there yet. But this can turn on a dime. You can

13:42get a

13:42few hawks coming out there and talking about, you know, we need to talk about rate hikes. We need to,

13:47you know, crush inflation. Then all of a sudden, and then, or the other side, what if you get a

13:52deal?

13:53What if you get a deal? And then all of a sudden, hey, then your yield goes down. Now, I

13:57don't think it

13:58gets down to 424 anymore because we're building up more embedded inflation. But still, this is,

14:04this is why it's a little bit different this time around. Naturally, as the spreads get better,

14:08naturally, mortgage rates aren't even close to 7% this year. But we have different dynamics that are

14:14tied to this calendar year because nobody kind of went into this thinking, we are going to start a

14:19conflict with Iran. And the Strait of Hormuz is going to be closed for a couple of months, you know?

14:25So again, you, as an analyst, you have to adjust to everything. Like we, we adjusted to COVID,

14:29right? You know, both on the downside and the upside, but here it's a little bit more complicated

14:35with spreads in the 10-year yield of mortgage rates because morning pricing wasn't bad. We

14:41might get another negative repricing toward the end of the day, depending on what the 10-year yield

14:45does. But if the White House didn't get the memo yet, today, the bond market is going, hello, homies.

14:53Okay, we're back here again. All right. You know, so it'll be an interesting next few weeks

15:01if the 10-year yield is still elevated here, or maybe it does. Maybe it does break over 460,

15:06heads up to 475 next. And then, you know, does the White House care about that? Or is that not

15:13just an issue for them at this point until you get this conflict resolved on terms that President

15:19Trump wants? You said, you mentioned that the forecast for you, the high end of your mortgage

15:24rate forecast for 2026, of course, before the conflict or anything we knew about that, was 6.75%.

15:30How confident are you now that we will, that that is the level that will hold,

15:35given everything that's going on? So we're at 4.59 and mortgage rates are 6.62.

15:43Okay. Okay. So mortgage rate, that's at 6.62 with near a 460 10-year means that the spreads

15:50are doing better than I thought. Right. And because of that, now, if the 10-year yield goes

15:56up higher and mortgage rates go higher, then you go, you think about what happened to make that

16:02forecast wrong. It's the conflict. So what happens if the conflict ends, you go back down. So now you're

16:08just basically working on a day-to-day premise. But as of now, the high end of the forecast of

16:14the

16:1410-year yield did not 100% correlate to the high end of the forecast in 2026 because we've tested

16:22it

16:22today. We're off by one basis points. In any case, spreads got better. And because of that, it's

16:28prevented the 6.75 rate from showing up today. Even if you get a repricing, I don't think you get

16:34that level. So the 10-year yield spread mortgage rate peak forecast did not match. You need it to

16:41break up higher. And we've got a lot of things priced in now into the marketplace. The question

16:46is, what's next? Again, the longer this goes, the more escalation it goes, and it does not impact the

16:53economic data in a negative fashion. Yields can go up. Mortgage rates could go up because

16:59there's no fear in the bond market of a growth slowdown. There's a growth slowdown and jobless

17:06claims start to rise. That's a whole different picture because then the dual mandate comes into

17:09play. But as of right now, you have a clear push up higher because there's no fear. And there's no

17:15fear by the Federal Reserve. There's no Federal Reserve person that's saying that labor market is

17:19breaking or anything like that. So it allows yields to go up higher. So it looks right to me. I

17:25mean,

17:25again, the contention I had is I thought 450 to 460 should have been early, but they kept on pushing

17:31these headlines that the ceasefire was going to happen and everything and technical levels weren't

17:34being broken. But a very fascinating day. And it just gets at this point, boy, it gets more and more

17:42interesting on a day-to-day basis now that yields are here and oil prices, both crude and WTI is

17:48over

17:49100. And Trump just got back from China. So a very interesting day. But with all that said,

17:57mortgage rates still under 6.64% as of this morning.

18:00Incredible. You know what I know this means, Logan, is that you're going to get no sleep this

18:05weekend. I don't get sleep. I don't get sleep at any time. I rarely, I rarely, I don't sleep much

18:10anyway, but it's just, it's fascinating to see this kind of go live. Because I don't think, I mean,

18:16of course, nobody knew we were going to go into conflict, but nobody thought May 15th. Like I do

18:21these Instagram live videos every day on what it is. And I'm saying the closer we get to June,

18:26the more serious the bond market will take it. And because there was no positive headlines that this

18:33is ending soon after the meeting with China, we're getting close to there. And I think,

18:39I think it's just when you get to June to September and you don't have oil flowing, man,

18:44we are talking about everything else was a Care Bears picnic with strawberry shortcake.

18:51There's nothing. You start to get into this summer months and you start to get all the reserves would

18:58dwindle down. Boy, it becomes a problem. You could do whatever federal gas tax removal on none of that

19:05demand. Oil has the potential to go higher. You could only do so much with jawboning or giving reserves.

19:12But as we dwindle down, it gets from June to September, it starts to get dicey for the world.

19:19And then you don't know, you don't know what somebody is going to do next. Do we attack Iran's

19:25energy infrastructures? There's a wrong, I mean, again, you're, this is the show 24.

19:30It's like we talked about early in the year. I'm never saying that ever again. I'm never going into

19:35year saying, I think, you know, 26 could be like a show 24. That was a terrible mistake. I apologize

19:40to everyone right now. I agree. Okay. We need to come up with a really nice, calm, happy,

19:46positive movie for, for 2027. But yeah, we had no idea how close it was going to be. Logan,

19:52thank you so much for, for getting on. And also for writing, I think it was every day this week,

19:57starting last weekend, you've written an article for us keeping us up to date on this. So really

20:02appreciate that work. Yeah. There's a, there's a lot going on again, when there's a lot going on,

20:07you need to get the correct information out to people because people are, again, I'm already

20:12seeing this. We're going to do financial repression and nobody's going to pay their mortgages. And

20:17guys, guys, I'm just going to, I beg and I plead you 99% of the stuff out there is

20:23doom porn trash.

20:24It's garbage. It's men and women trying to get attention by saying garbage stuff. Y'all remember

20:30last year where they said, Oh my God, we have to create a recession because there's no way we can

20:36handle all this treasury supply and yields are going to have to rise. And the labor market

20:41getting softer. It doesn't matter what happened. The labor market got softer. The bond yields went

20:44lower. Okay. The slow dance. The reason we talk about the slow dance between the 10 year yield

20:50and 30 year mortgage rate is Fed policy is the driver of this, right? Within a cycle,

20:55you could have things moving down based on inflation expectations, nominal growth,

20:59wager, whatever all the other variables. But because the labor market was getting softer,

21:04even in amongst the $36 trillion in debt and 10 trillion supply bond yields went lower the entire

21:09cap. It's different now because inflation is rising and the Fed is getting hawkish, right? So it's a

21:15conflict between Warsh and whatever, whoever is left on the dovish side of the Fed. Now, boy,

21:23every month that goes on like this, you're building more and more hawks, right? So tough,

21:30tough, tough spot for Kevin Warsh to start off with, with this must've sentient. But again,

21:35this is why I said, I am shocked that they had him here while the conflict went on because it

21:41makes

21:41his job harder. And what is Trump going to do? I'm going to fire you for not cutting rates in

21:45the

21:45first time. That's not how it works. It is not how it works. Okay. Well, we're keeping a really

21:50close eye on this. Everybody check back on housingwire.com. We'll have the latest. Logan,

21:55thank you again. We'll talk to you soon. Yeah. And who knows how, what's going to happen Monday

21:59morning, right? I mean, nobody knows. Between here and there, it's like forever. All right. We'll talk soon. Bye.

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