Are mortgage rates about to move lower?
Bond yields fell sharply Friday as investors flocked to US Treasuries after a weaker-than-expected jobs report spiked chances of a Federal Reserve interest rate cut.
The 10-year Treasury yield – which strongly influences the direction of fixed mortgage rates – had plunged to 4.329% at time of writing, its lowest level since the end of June, on the back of new data suggesting the labor market is softening.
Two-year yields also plummeted, seeing their biggest decline for nearly a year, while the greenback dipped after the jobs report.
The US economy added 73,000 nonfarm payroll jobs last month, the Bureau of Labor Statistics said, well below the 100,000 anticipated in a Dow Jones estimate.
There were “plenty of other signs of weakness” in that report, according to TD director and senior economist Thomas Feltmate. He highlighted that the duration of unemployment had jumped to its highest level for over three years, with the breadth of private industry hiring still significantly lower than what’s usually seen in a balanced labor market.
That could change the picture when it comes to the Fed’s plans for the rest of 2025. “Stability in the labor market has been a major factor keeping the Fed on the sidelines through this year,” Feltmate wrote.
“But with that narrative now shattered, and two voting members already advocating for rate cuts, the prospect of a September cut is looking increasingly likely.”
Fed futures are now pricing in an 80% probability of a September cut, he added, compared with the roughly 50-50 chance seen before today’s data.
Are mortgage rates on the way down?
A continued slide in Treasury yields would likely put downward pressure on mortgage rates, which have stayed stubbornly high throughout most of the year.
Last week, the 30-year fixed average mortgage rate ticked slightly lower, to 6.72%, but it remains prohibitively high for many buyers hoping to enter the housing market.
Bonds also surged, hitting stocks, as President Trump unveiled a flurry of new tariffs on key trading partners, including an increased 35% levy on certain Canadian products entering the US.
That tariff barrage arrived after Trump’s self-imposed August 1 deadline passed for countries to strike a trade deal with the US.
In response to that trade war escalation, and the meek labor market report, the VIX – Wall Street’s influential “fear gauge” – rose above the 20-point mark, signaling that markets are uneasy about the direction of the economy.
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