Surging crude and rising yields put fresh pressure on rate sheets
Soaring oil prices and a flight out of government bonds at the start of the week put mortgage lenders back on rate‑watch, as the latest escalation in the Iran war pushed Treasury yields higher and reignited talk of stagflation across markets.
Oxford Economics said “Treasury yields are higher, trailing significantly larger increases in gilt and bund yields as soaring oil prices drive stagflation concerns,” even after crude pulled back from overnight highs.
The firm noted that West Texas Intermediate (WTI) crude briefly jumped more than 30% in Asian trading, reaching $119.48 a barrel, while the 10‑year Treasury yield “briefly ris[ed] just above 4.20%” as investors dumped bonds in favor of cash and the dollar.
“The Strait of Hormuz remains effectively closed as fighting continues in the Middle East,” the report said, adding that with oil unable to travel, “Middle Eastern nations oil stores are filling up, causing nations to curtail oil production.”
That squeeze fed directly into inflation expectations, with Oxford Economics observing that the two‑year breakeven rate climbed from 2.82% to 3.15% in a week, and markets briefly priced less than 35 basis points of Fed cuts for the year.
Market sources have already warned that war‑driven energy shocks could disrupt the usual safe‑haven bid for Treasuries. The traditional bond‑as‑haven trade is less clean if higher oil prices keep inflation sticky.
For lenders, meanwhile, US mortgage rates are set off the back of 10‑year yields and the spread on mortgage‑backed securities,” not day‑to‑day crude moves.
On the front lines of origination, Amir Nurani, broker-owner at Left Coast Leaders, recently sounded the alarm that “war is inflationary.”
“As far as its impact on the market, what people don't realize is war is inflationary,” Nurani told Mortgage Professional America.
“Because you have spikes in oil prices. The other part of that is when we go into war, the likelihood of the Fed needing to print money goes through the roof. Do I think this is going to lead to a Fed rate cut? I don't think so. I think that the money printer will turn on before the Fed starts easing on rates.”
Longer term, Mortgage Bankers Association chief economist Mike Fratantoni previously said that his team expected 30‑year rates to hover between 6% and 6.5% in 2026, even with gradual Fed easing, because “concerns about inflation and growing budget deficits” continued to support yields.
As long as the Strait of Hormuz stays effectively closed and traders fear an inflation flare‑up, rate sheets are likely to remain jumpy, and any sustained move in the 10‑year above 4% risks tightening already fragile affordability just as the spring selling season approaches.
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