Home loan rates started the new week with a fairly quick jump back into the low 6% range (top tier 30yr fixed rate for the average lending institution). With the news cycle very focused on developments in Iran, the majority of protection attempts to correlate geopolitical events with market movement.
The only genuine method to do this would be to state that upward pressure on oil prices is equating to greater inflation implications and therefore higher rates. At often times in the past, this would be a solid conclusion. To some little level, a case might even be produced this correlation accounting for a portion of today’s weakness.
But the majority of the big, directional moves in oil costs over the previous 2 days have failed to correlated with big relocations in the bond market. Even when we zoom out to wider contexts, we see counterproductive advancements over the past a number of years. When oil peaked around $120/bbl in 2022, 10yr Treasury yields were around 3%. When oil fell sharply into 2023, bond yields continued moving up and have actually held flat for the last couple of years even as oil carefully declined.
However, there are also pockets of connection where we can see the two lines moving in the same instructions. The only problem with that is that oil and rates can both respond to a third variable: economic strength. On that note, this week’s financial data may be simply as big of an influence on rate momentum while geopolitical advancements represent a wild card that can create a backdrop of volatility.