Morning Market Brief: Spreads Compress as 10Y Settles Below 4.30

The 10-year Treasury yield closed at 4.28% on Friday, down 6bps on the week, as softer-than-expected PCE data reinforced market expectations for a June rate adjustment. The 30-year fixed mortgage rate held at 6.79% (Freddie Mac PMMS, Mar 20), leaving the primary mortgage spread at approximately 251bps, a modest compression from the 255bps level observed earlier in the month.

For lenders, the spread compression is incrementally positive for gain-on-sale margins, though the move remains within the elevated range that has persisted since mid-2023. The 2-year Treasury at 4.02% continues to price in a more dovish path than the 10-year, maintaining a normal yield curve shape with a 26bps positive slope.

Consumer sentiment (University of Michigan, Mar) registered 57.9, down from 64.7 in February, reflecting persistent affordability concerns. Initial jobless claims held steady at 223K (FRED, Mar 20), consistent with a labor market that remains tight but not overheating. SOFR printed at 4.30%, unchanged week-over-week.

The housing supply picture showed some improvement: housing starts came in at 1,501K (SAAR) and building permits at 1,456K, both slightly above consensus. For QC teams, the combination of stable rates and improving supply suggests origination volume may tick higher in Q2, which historically correlates with increased defect exposure on the front end of the pipeline.