WEEKEND Mortgage Market Update

The Shutdown Drags On

Good morning! The longer this government shutdown lingers, the more it begins to chip away at GDP and overall growth. Even when the government reopens, much of that lost output can’t be recovered—especially for small private-sector businesses that depend on federal contracts and spending.

Yesterday, we finally saw the 10-year Treasury yield drop below 4.0%—a major technical milestone and a clear sign that investors are shifting into “risk-off” mode. Bonds typically rally when investors get nervous, and this could help mortgage rates continue trending lower.

Regional Banks Back in the Spotlight

The big story yesterday wasn’t just rates—it was the regional banking sector. Both Western Alliance and Zions Bancorporation saw steep stock declines after disclosing losses tied to loan-related fraud. Zions reported a $60 million hit on two commercial loans and has launched an independent investigation. Western Alliance confirmed similar borrower exposure and filed a lawsuit back in August.

While both banks insist these are isolated incidents, the optics have reignited old concerns about the stability of regional lenders—especially those heavily exposed to non-depository financial institutions (NDFIs). Translation: the market hates uncertainty, and this renewed unease is another factor nudging investors toward safer assets like Treasuries.

Economic Data and Market Impact

The Philadelphia Fed survey tanked from +23.2 in September to -12.8 in October, showing a sharp slowdown in manufacturing sentiment. Meanwhile, the NAHB Housing Market Index rose slightly from 32 to 37, signaling some stabilization in builder confidence as rates ease.

Freddie Mac’s latest report confirmed that mortgage rates have fallen for the second week in a row, with the 30-year fixed at 6.27% and the 15-year at 5.52%—close to year-to-date lows. APM’s own pricing is in a similar range, with certain scenarios even lower depending on credit and structure.

Technical Picture

Mortgage Bonds broke above resistance at 101.11 yesterday, and the next key level sits at 101.31. If the 10-year yield can hold under 4%, we could see a run toward 3.80%—and possibly down to 3.67–3.60%, according to technical models. That would be a strong signal that this rally has legs.

Bottom line: Rate sheets should be near the best levels we’ve seen since the last Fed meeting. The short-term play is to cautiously float—but don’t hesitate to lock if the 10-year closes back above 4%.

Looking Ahead

All eyes are on the October 28–29 Fed meeting, where a rate cut now looks almost certain. Until then, we’re watching the bond market closely and staying flexible.