The 30-year fixed-rate mortgage fell to 6.58% for the week of August 14, down from 6.63% the week before. This is the lowest rate since October 24, 2024.

Mortgage Rate Trends

In 2025, mortgage rates have stayed within a tight range, peaking at 7.04% in January and dropping to 6.53% this week. The 10-year yield, which often reflects mortgage rates, reached 4.809% at the start of 2025 and fell to 3.860% in April. The current yield is 4.30%, sitting comfortably in the middle of its yearly range. Since its peak, the 10-year yield has decreased by about 50 basis points. In comparison, the 30-year mortgage rate has fallen by 46 basis points. Even though the 10-year yield dropped significantly in April, mortgage rates didn’t decline as much. This shows that other factors are also affecting mortgage rates. With the 30-year mortgage rate at 6.58%, we’ve hit the lowest level since last October. This decline reflects the narrow trading range we’ve been in for much of 2025. Right now, the market seems stable, with no clear signs of a major shift in either direction.

Economic Indicators and Market Expectations

The recent dip in rates aligns with the broader economic situation. The July 2025 Consumer Price Index report showed inflation easing to 3.1%, slightly below expectations. Additionally, the latest job report showed a slowing but still positive labor market, easing some pressure on the Federal Reserve. Recent comments from the Fed suggest they are satisfied with this trend but will wait before considering any rate cuts. Currently, markets see a 45% chance of a quarter-point cut in the December 2025 meeting, up from 30% a month ago. This rising expectation is likely to limit major upward movements in yields for now. Since the 10-year yield has fluctuated between approximately 3.8% and 4.8% throughout the year, selling volatility looks like a smart strategy. We suggest selling out-of-the-money call and put options on 10-Year Treasury Note futures (ZN) for September and October. This strategy, known as a short strangle, profits from sideways movements and time decay. For traders who think the gradual decline in rates will continue, a debit call spread on longer-term Treasury bond futures (ZB) is a lower-risk option. By buying a call option and selling one at a higher strike price, traders can benefit from a modest rise in bond prices. This method limits both potential profit and upfront costs compared to a full long position. We also observe that mortgage rates haven’t decreased as quickly as Treasury yields earlier in the year, widening the gap between them. This suggests underperformance in mortgage-backed securities (MBS). A potential strategy could be buying Treasury futures and selling MBS futures, betting that this gap stays wide or widens further soon. Create your live VT Markets account and start trading now.

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