The US 30-year mortgage rate has risen to 6.75%, up from 6.72%, according to Freddie Mac. Earlier in the week of April 10, the lowest yield for 2025 was 6.62%. In mid-January, this rate peaked at 7.04%. Mortgage rates have mostly fluctuated between 6.10% and 7.22%. Last year, there was a significant jump in rates from September to November, peaking at 7.79%.

Current Market Trends

The current 10-year yield is above its 100-week moving average, while the mortgage rate is below its 100-day moving average. This raises questions about how the mortgage market will respond, especially given the low demand. Recent reports from financial institutions show strong earnings, contrasting with the 10-year yield nearing its high compared to the 30-year mortgage. The slight increase in the 30-year mortgage rate suggests a broader market struggle. While Treasury yields indicate rates should be higher, the housing market seems unable to keep up. This inconsistency presents opportunities for traders betting on which side will ultimately prevail. Recent government data supports the strength in the Treasury market. The latest Consumer Price Index showed a 3.5% annual increase in March, indicating persistent inflation. This is driving bond yields higher and explains why the 10-year yield is above its long-term moving average. It also suggests the Federal Reserve may not lower rates anytime soon.

Market Opportunities and Risks

Conversely, the weakness in the mortgage market appears linked to declining housing affordability. The National Association of Realtors reported a 4.3% drop in existing-home sales in March, the largest monthly fall in over a year. Lenders might hesitate to fully pass on rate hikes to an already vulnerable consumer base, which helps explain why mortgage rates are lagging. Given the tension between stubborn inflation and a weak housing market, we expect increased interest rate volatility. The Treasury volatility index, or MOVE index, has stayed above 100 for most of the year, indicating ongoing uncertainty. Traders may want to consider purchasing options, such as straddles or strangles on Treasury futures, to benefit from a significant rate shift in either direction. Additionally, one could trade the spread between different parts of the interest rate market. For instance, a trade could profit if the gap between short-term rates and long-term mortgage-backed securities widens. This strategy would likely perform well if the Federal Reserve maintains high rates while the housing market continues to cool. Historically, discrepancies like the one between government yields and consumer rates can indicate stress in the financial system. While the situation is not as critical as before 2008, it serves as a reminder to watch for signs of credit tightening that could impact the overall economy. In the coming weeks, a key question will be whether the bond market’s dynamics will push mortgage rates higher or if a slowing economy will lower Treasury yields. Create your live VT Markets account and start trading now.

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