Spoiler alert: it’s not Iran. And this morning’s yields are the 2nd lowest in more than 3 months behind last Friday. Last Friday was also a month-end trading day with a mini snowball rally that defied overt explanation (apart from “month end bond buying”)–a fact that led us to warn about the risk of “new month bond selling.”  It’s not that bonds always rally at month-end or sell off when the new month begins, but if there’s a sharp, inexplicable move on the last day of any given month, the risks of a reversal increase on the first day of the following month. Geopolitical headlines may cause modest volatility here and there, but bonds’ correlation with oil prices is not a reliable analytical focus.

The next chart shows what oil and bond yields had been doing on the last 3 days of last week.  Notice the extreme absence of correlation.

Here’s the move so far today–the one that has people concluding that bond yields are higher because oil is higher.  In fact, versus the 3pm CME close on Friday, bonds were flat until 7am.  By that time, oil had already experienced almost all its volatility for the day.  The crux of the bond sell-off played out in a vacuum–STRONGLY suggesting Friday’s yields were dragged down by month-end buying and this morning’s selling is “new month” positioning. 

In what seems to be the blink of an eye we’re down two months of 2026, and by most accounts they were decent for lenders and vendors. Here in Ft. Lauderdale at the Lenders One Summit, the talk in the hallways, like that at several recent conferences, is centered around a handful of topics, M&A being one of them, and the desire for companies to control the “funnel.” STRATMOR’s Garth Graham, who resides nearby, last night told me that STRATMOR has a full complement of buyers and sellers and we discussed the Rocket/Compass deal and its relation to the Rocket/Redfin deal. Will the 80-basis point “spiff” motivate brokers to move business away from other leader wholesalers? The United States and Israel attacking Iran is certainly a topic, and along those lines the “disappearance” of the traditional “flight to quality” when something like this happens. Types of production are also a favorite topic at conferences, and I received this note. “Rob, my team and I have only done a handful of ‘mainstream’ loans in the last several months. We’re doing more private money loans than ever before, more non-Agency, and deals that take several months. Are you hearing this from others? Absolutely. (Today’s podcast can be found here and this week’s ‘casts are sponsored by Feewise, which turns mortgage compliance from bottleneck to business accelerator. Handle all the complexities involved with establishing TRID compliant fees and disclosures, achieve sign off, and deliver packages to your consumers for review or signature. Hear an interview with FirstClose’s Andria Lightfoot on modernizing processes with low-lift digital entry points to eliminate bottlenecks, boost borrower satisfaction, and stay competitive in the evolving home equity market.)

Mortgage rates began the new week with a fairly quick jump back into the low 6% range (top tier 30yr fixed rate for the average lender). With the news cycle very focused on developments in Iran, most coverage attempts to correlate geopolitical events with market movement. The only legitimate way to do this would be to say that upward pressure on oil prices is translating to higher inflation implications and therefore higher rates. At many times in the past, this would be a solid conclusion. To some small extent, a case could even be made for this correlation accounting for a portion of today’s weakness. But most of the big, directional moves in oil prices over the past 2 days have failed to correlated with big moves in the bond market.  Even when we zoom out to wider frames of reference, we see counterintuitive developments over the past several years. When oil peaked around $120/bbl in 2022, 10yr Treasury yields were around 3%. When oil fell sharply into 2023, bond yields continued moving up and have held flat for the last few years even as oil gently declined. Nonetheless, there are also pockets of correlation where we can see the two lines moving in the same direction. The only problem with that is that oil and rates can both respond to a third variable: economic strength. On that note, this week’s economic data may be just as big of an influence on rate momentum while geopolitical developments represent a wild card that can create a backdrop of volatility.

MBS numbers at both soared in January, when Trump directed the enterprises to accumulate more bonds, but a decline in loans shrunk Freddie’s total number.

Though changes to bank capital rules previewed by Federal Reserve Vice Chair for Supervision Michelle Bowman in February are being viewed as welcome, experts say other more significant hurdles — not all of them regulatory — are keeping banks on the sidelines of mortgage servicing and lending.

Mortgage One is accused of using an artificial intelligence voice agent for outbound solicitations, recommending a cash-out refi to the plaintiff in the case.

New York is seeking $21 billion in federal grants for a construction project at Sunnyside Yard, which would allow the city to build 12,000 new affordable homes.

Not all borrower scenarios are equal. When it comes to evaluating the risk of small landlords, lenders need to focus on a few specific factors.

Bonds Cap Stellar Week/Month With Strongest Close

Bonds ended the week/month at their strongest levels with 10yr yields breaking below the 4.0% floor to close at 3.95+.  In addition to the low outright levels, the journey was accomplished with minimal volatility along the way. This is potentially surprising given this morning’s much higher PPI numbers, but as discussed in the AM commentary, PPI is notoriously volatile and hasn’t had a noticeable impact since 2024. Next week brings the typical early month, big ticket econ data (ISM, ADP, and the jobs report).

Econ Data / Events

Core PPI m/m (Jan)

0.8% vs 0.3% f’cast, 0.7% prev

PPI m/m (Jan)

0.5% vs 0.3% f’cast, 0.5% prev

PPI y/y (Jan)

2.9% vs 2.6% f’cast, 3% prev

Market Movement Recap

08:34 AM No reaction despite balmy PPI.  MNS up 1 tick (.03) and 10yr down 2.2bps at 3.982

01:03 PM MBS up 2 ticks (.06) and 10yhr down 3.5bps at 3.969

03:27 PM MBS up 2 ticks (.06) and 10yr down 3.7 bps at 3.967

Mortgage application activity edged ever-so-slightly higher last week, with the Mortgage Bankers Association (MBA) reporting an increase of 0.4% on a seasonally adjusted basis for the week ending February 20. Refi applications continue to do the heavy lifting. The Refinance Index increased 4% from the previous week and was 150% higher than the same week one year ago. Conventional refinance applications rose 5% for the week, while VA refinances jumped 26%, as rates declined to their lowest levels since September 2022. Notably, rates have moved even lower this week and have held these new multi-year lows in very stable fashion. If history is any guide, this should lead to an even higher refi index next week. Purchase demand moved lower, falling 5% on a seasonally adjusted basis, though activity remains 12% higher than the same week one year ago.  Joel Kan, MBA’s Vice President and Deputy Chief Economist, attributed the modest increase in overall activity to declining Treasury yields, which helped push the 30-year fixed rate to its lowest level in several months. The composition of activity shifted further toward refinances. The refinance share of total applications increased to 58.6% from 57.4% the prior week, while ARM share held steady at 8.2% . FHA share decreased to 16.1% , VA share rose to 18.7% , and USDA share remained unchanged at 0.4% .