I had the distinct pleasure of speaking at the 2026 Texas Mortgage Bankers Association Conference in Houston last week. Understandably, conversations throughout the event centered on the familiar themes of interest rates, housing‑market strain, and the increasingly unavoidable issue of affordability. Had attendees played a drinking game in which every mention of “affordability” required a drink, the conference would likely have concluded early each day.
Still, the event was a tremendous success. Between sessions and during the post-event gatherings, I engaged in a number of insightful conversations with incredibly astute mortgage professionals. Although the broader U.S. economy remains fundamentally robust, frustrations within the housing segment of the economy were nearly universal. The message was clear: affordability is the pressure point, and housing remains deeply local, with outcomes varying dramatically by region.
Equity markets were largely unmoved last week as sentiment faltered under renewed tariff anxieties and broader concerns over AI-driven disruptions. As expected in a risk-off environment, consumer staples and utilities outperformed, while industrials, consumer discretionary, technology, and software lagged.
Geopolitical uncertainty - particularly involving rising tensions with Iran (more on this later) added an additional layer of caution. These developments helped fuel safe-haven demand in Treasuries, contributing to firming on the bid side of the rates market.
Despite a surprisingly hot PPI print, with core PPI rising 0.8% MoM and 3.6% YoY, Treasuries continued their steady march toward lower yields. Moreover, PPI components feeding into the Fed’s preferred inflation gauge, PCE, suggest a 0.5% MoM rise may be in store when January data is released. Such a reading would likely suppress any remaining enthusiasm for a March rate cut, instead pushing the first realistic window for policy easing out to June. Even as labor‑market cooling remains a topic of concern, persistent inflationary pressure continues to influence the Federal Reserve’s reaction function.
The 10-year Treasury yield broke through the psychologically important 4% level, holding a “3‑handle” into Friday’s close. Notably, the market closed at 3.93%, coinciding with October’s low. Major support can be found at 3.85% and 3.60% representing the low following last year’s recovery from April’s tariff-induced volatility.
Much to the relief of my new mortgage‑banking colleagues, the rally in Treasuries pushed the 30-year mortgage rate index below 6%, marking the first break of that threshold since 2022. While a welcome development, it is far from a cure-all: only 21% of outstanding mortgages sit above this key level. Still, the move may provide just enough incentive for first-time homebuyers to reconsider entering the market.
This week brings a fresh round of labor‑market figures, culminating in Friday’s BLS Employment Report, preceded by releases from Revelio, ADP, and Challenger. Recall that January’s data showcased a pronounced divergence between government and private‑sector readings. Investors will be watching closely to determine how much confidence they can place in the official numbers - a question that could meaningfully influence near-term positioning and risk appetite.
Geopolitical risks escalated sharply Saturday morning, as U.S. and Israeli forces bombed Iran, killing Supreme Leader Ali Khamenei and other senior officials. Prior to this, Treasuries had rallied on Friday, with yields closing near 3.9375%, a move likely to extend further when markets reopen Sunday evening amid a pronounced flight‑to‑quality dynamic.
The potential ramifications for energy markets are significant. A prolonged period of heightened tension could push crude prices above $100/barrel, especially if concerns grow around possible disruptions to the Strait of Hormuz. Escalating geopolitical stress has the capacity to stretch markets beyond previously assumed limits. However, once the dust settles, I continue to believe that sustained sub‑4% yields in the 10-year Treasury will prove difficult to maintain for an extended period.
From the Municipal Desk (with contributions from Ryan Riffe):
The municipal market closed out February on solid footing, grinding out another positive week. Modest supply, strong inflows, and muted customer bid‑wanted activity all contributed to the impressive run Munis have posted year to date. Heading into 2026, there appeared to be near‑universal conviction that new‑issue supply would at least match, if not exceed, 2025 levels. Issuance thus far has not reinforced this expectation - and has likely caught a number of market participants off guard. Dealers have been scrambling to restock shelves while new‑issue deals continue to be heavily oversubscribed. Presently, there simply aren’t enough bonds to meet demand.
We continue to see customer accounts willingly extend further out the curve as front-end yields compress. Muni/Treasury ratios have remained anchored in rich territory, a direct reflection of the supply-demand imbalance. The market now turns its attention to the spring, a period that traditionally can be tricky given the sizable drop-off in reinvestment capital from maturing coupons and principal payments.
While the new‑issue calendar will almost certainly grow throughout March, we expect the early‑month supply to be met with strong demand given the persistent inflows into municipal funds and ETFs. This week’s projected supply sits around $11 billion - slightly above the year-to-date weekly average of $9.5 billion - setting the stage for another active stretch in the market.
Weekly Supply @ $11+ Billion
2-YR Ratio @ 59%
3-YR Ratio @ 59%
5-YR Ratio @ 59%
10-YR Ratio @ 63%
30-YR Ratio @ 90%
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