Mortgage rates hit breaking point as peace pause and Japan fuel Friday panic ⚡ Flash Update (AUG 1)
Flash Market Update
TABLE OF CONTENTS
THE BRIEF 📰
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Things were starting to look promising for mortgage rates last weekend after peace talks were expected to resume (again).
However, midweek doubts emerged and by Friday the price of key mortgage-bond coupons had fallen 169 to 222 basis points since the June peace deal was signed.
But renewed geopolitical weakness wasn’t the only blow.
The yen was sitting near a 40-year low when Japanese authorities intervened to boost its value, followed by coordinated support from the U.S. Treasury.
THE IMPACT 💥
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Mortgage rates do not technically rise or fall. Instead, it is the price of rates that changes while the full menu of options remains constant.
Bond prices have an INVERSE relationship with the price of mortgage rates.
The yen rescue effort likely required Japan to sell dollar-denominated reserves, adding further pressure to an already fragile U.S. bond market.
Mortgage bonds were less favored on the day, which is reflected in the wider MBS-Treasury spreads.
Mortgage bonds are now sitting in a very delicate position.
The current levels have been tested frequently going all the way back to 2023.
What followed back then was a total bloodbath and the worst mortgage rates in over two decades.
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