A while back I noticed that mortgage rates were trending up.
This was after a long period of downward trend. It was a successful change of direction.
And remarkable because we were seeing interest rates lower and lower before the sudden shift higher, driven by unexpected strikes in the Middle East.
Now that that appears to have been partially resolved, bond yields (and mortgage rates) have finally come down a bit.
Could it be the start of a major pullback back to the bottom seen in early 2026?
Are Mortgage Rate Trends Our Friend Again?
After a good day for bonds yesterday, they extended their moves today after the PCE inflation report came in as forecast.
While the Federal Reserve’s preferred inflation gauge hit its highest level since late 2023 (which happens when the 30-year average rebounds to a peak of around 8%), it was in line with the Dow Jones consensus.
And given the Middle East deal and oil prices falling rapidly, it appears that investors are not as concerned about inflation as they were a week or a month ago.
This has pushed the 10-year bond yield down, from a recent peak of 4.66% in mid-May to around 4.38% today.
In other words, yields are about 30 basis points lower than last month and could continue to decline as oil prices decline.
Lower oil prices will reduce inflationary concerns in the process and arguably bring us back to the way we were before the conflict started.
That’s probably the reason why loan rates are getting better, eventually.
The big question is if they can keep coming together over time and avoid any setbacks.
And if they can go back completely to those levels seen before the war at the end of February.
Are Bond Yields (and Mortgage Rates) Returning to Pre-War Levels
We already have oil prices back to pre-war levels. So why not produce a bond?
If the movement of the past few months was about war and rising oil prices, shouldn’t bond yields also fall?
It makes sense, however as we know these things always take time to happen.
The old elevator up, stairs down comes to mind. Mortgage lenders are quick to raise rates and slow to stop.
And you can’t really blame them. But if we cut another 30 basis points, we’ll be back to those levels from February.
So in a sense we’re in the middle of there and if we can keep up the momentum, we can get back to sub-6% for the 30-year fixed.
The yield on the 10 year bond was around 4% where the 30 year fixed could cover 5 handles, or shorter.
This is where we need to get to if we want mortgage rates to start in the 5s again.
It’s possible, but it probably won’t happen very quickly given the current awareness of possible price increases, the valuation of frozen technology stocks, and a potential backlash in the Middle East.
In the meantime, be glad loan rates have not returned to 7% due to the protracted conflict with Iran.
Things could have been worse.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 20 years ago to help prospective (and current) home buyers better navigate the mortgage process. Follow me on X for the hottest.
