10-year yield climbs to 5.28% despite a 29,000-job report as mortgage-bond ETFs see $2.4 billion of outflows
A weak jobs number pulled Treasury yields down in the morning, and they were higher by early afternoon. The selling in mortgage bonds is what keeps a 7.28% mortgage rate from easing.
Treasury yields turned higher on Friday after first falling on a weak September jobs report. The 10-year yield was 5.281% at 1:54 p.m. ET, up 4.7 basis points from Thursday's 5.234%, according to CNBC quotes. The two-year yield, the most sensitive to Fed expectations, was up 4.8 basis points at 4.835%, and the 30-year was 5.633%. CNBC reported that yields fell right after the data and moved back into positive territory through the session.
The payroll gain of 29,000 jobs was well under forecasts, and futures traders cut the odds of an October Fed hike. HousingWire's Logan Mohtashami noted that recent remarks from Fed Vice Chair Philip Jefferson and New York Fed President John Williams, both signalling no rush to raise rates, had not been enough to hold long-term yields down either.
The number behind the number: who is selling
A lower October hike probability helps the short end of the curve. It does nothing for investors who own long-dated, fixed-rate debt and are worried about inflation and supply. That is visible in mortgage bonds. Investors pulled $2.4 billion from exchange-traded funds that hold US mortgage-backed securities, the fastest pace since March 2020, Bisnow reported, citing Bloomberg. BlackRock's iShares MBS ETF lost about 3% on a total-return basis in September, and Simplify's and Schwab's MBS funds saw outflows of $342 million and $246 million.
That matters because the mortgage rate a borrower gets is the yield investors demand on those bonds, plus servicing and lender costs. When MBS buyers step back, the gap between the 10-year and mortgage rates tends to widen or stay wide even when Treasuries steady.
What the curve did this week
| Treasury par yield | Sept. 23 | Sept. 30 | Oct. 1 | Oct. 2, 1:54 p.m.* |
|---|---|---|---|---|
| 2-year | 4.85% | 4.88% | 4.78% | 4.835% |
| 10-year | 5.11% | 5.29% | 5.24% | 5.281% |
| 30-year | 5.40% | 5.64% | 5.61% | 5.633% |
The pattern is a steepening: the two-year is lower than a week ago, while the 10-year is about 17 basis points higher and the 30-year about 23 basis points higher. The jobs data pulled expectations for the Fed's next move down. It did not pull down what investors want to be paid to hold debt for a decade or more.
Who it hits
Someone buying a house this autumn. Freddie Mac's 30-year average was 7.28% on Oct. 1, up from 7.03% a week earlier. On a $400,000 loan, that is a principal and interest payment of about $2,737 a month, against about $2,669 at 7.03%, a difference of roughly $68 a month or about $810 a year. With the 10-year at 5.28% instead of falling, there is no relief in that number yet. Freddie Mac's next reading is due Thursday.
Commercial property owners refinancing. Bisnow noted that the 10-year is used to price commercial real estate debt and that higher borrowing costs are holding up some deals. A loan priced off the 10-year now starts above 5.25% before any spread is added.
A business on a prime-based credit line is the group least affected by this move. Prime follows the Fed funds rate, not the 10-year, and the jobs report made an October hike less likely. We worked through that math in this morning's Fed odds story. Live rates are on our 10-year chart.
*Intraday CNBC quote; other columns from the U.S. Treasury daily par yield curve. Sources: CNBC; HousingWire; Bisnow, citing Bloomberg; Freddie Mac PMMS. Payment math is Chronicle arithmetic. This is market information, not investment advice.
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