Mortgage-Backed Securities Insights — Week of June 16, 2025

Hi, I'm Jerry Levy, Managing Director of Texas Capital's Mortgage Securities Sales and Trading. 

Last week, we spoke about the focus on refunding and the arcane measures that people were going to look at to glean any insight into what the Fed would do this week. Refunding was a success. Above-average demand for all three auctions, the three-year, the 10-year and the long-end 30-year, and both good bid cover ratios and foreign central bank demand. 

Why is this important? It's important because the demand for U.S. treasuries, which people feared would not be there, is there. Last week we were 4% two-year, 4.5% 10-year and 5% on the 30-year. Today we walk in, we're about 5 to 10 basis points below this, which gives us a 30-year mortgage rate of about 6.90 to 6.95. The safe haven bid that came reversed, and the market is now looking at where will inflation be and what is the impact of the geopolitical events, which means they're afraid of this spike in oil, which did spike into the high 70s. This morning we're sitting about $72 a barrel, which is $6 off of Friday's high.

Another interesting thing to note is that the FT reported that gold is now the second-largest reserve currency behind the U.S. dollar. It's actually something that is totally unexpected. You would think it would be the euro or the yuan. Under Basel III, gold is actually 0% risk weighted. This is directly correlated to those central banks such as China, Russia and the BRICS central banks that either face restrictions or believe they are going to be under restrictions.

Okay, where are we for the Fed? Focus will be on the Fed's dot plot, which is their economic forecast for the rest of 2025. I believe they're going to stay with the two cuts that have been forecasted for 2025. But with the implementation of the Trump administration's economic policies, the delay in that implementation, I believe the job losses and the slowdown will happen in the fourth quarter of 2025, which, in my view, will give us more than the two cuts. 

Last note is on housing. Home price appreciation. That has become a tailwind for inflation. Let me give you back the numbers: 2024, home price appreciation was 4%. ICE had the April year on year at 2%, and May 1.4%. Look for 2025 to be zero at best for a home price appreciation, which is helping affordability. Thank you for listening. And until next time.