Key facts
- Mortgage rates reached a yearly high of 6.85%.
- WTI oil is trading above $90 per barrel, and Brent Crude is over $100.
- The 10-year Treasury yield hit 4.71%, with other yields also at yearly highs.
- Jobless claims are at their lowest level since 1969.
- The Federal Reserve has a 36% chance of a rate hike at its upcoming meeting.
- The conflict in Iran has escalated, with potential for further attacks.
Mortgage rates have climbed to a yearly high of 6.85%, driven by escalating conflict in Iran and strong labor market data. This marks the first time in 2026 that rates are higher this year than last year on the same day.
West Texas Intermediate (WTI) crude oil prices have surpassed $90 per barrel, and Brent Crude is trading above $100. Concurrently, US jobless claims have fallen to a level not seen since 1969. These factors have contributed to the 10-year Treasury yield reaching 4.71% this morning, with the 2-year yield at 4.37% and the 3-month yield at 3.88%, all representing yearly highs.
The Federal Reserve is set to meet next week, and with a hawkish sentiment prevailing, there is a 36% probability of a rate hike. The author had previously forecasted the 10-year yield at 4.60% and mortgage rates peaking at 6.75%, but the escalating conflict in Iran has surpassed these expectations.
President Trump stated he is considering a "massive attack," further influencing market sentiment and driving rates upward. Despite potential further escalation, the author projects mortgage rates to remain below 7.25%. Current data from HousingWire's mortgage rates center shows rates at 6.90%, and Mortgage News Daily reports 6.85%, indicating the conflict's impact on higher rates.
The 10-year yield has been trading near the upper range of its five-year level, with bond yields steadily increasing over the past 13 days of the "Iran 2.0" conflict. Negative news regarding the conflict and rising oil prices are directly correlated with higher yields. The author notes that mortgage spreads have helped keep rates below 7% but acknowledges their limitations, as 30-year mortgage rates have historically been tied to the 10-year yield.
If mortgage spreads were at 2023 levels, rates would be 7.80%; at 2024 levels, 7.42%; and at 2025 levels, 7.23%. The current situation is primarily influenced by the Iran conflict and oil prices, overriding concerns about a hawkish Fed and labor data. The bond market is reacting to headlines from the Iranian conflict and recent Houthi attacks on a tanker in the Bab el-Mandeb strait, potentially forcing President Trump to manage conflict on multiple fronts.