Primary Spreads Tighten 4 bps to 195 as Treasury Yields Climb

Credit markets delivered another session of measured normalization as primary mortgage spreads compressed 4 bps to 195 bps over the 10-year Treasury (FRED), extending yesterday's tightening trend. The 10-year Treasury yield climbed 4 bps to 4.42% while mortgage lenders maintained unchanged pricing with 30-year rates holding at 6.37% and 15-year products steady at 5.72% (Freddie Mac PMMS). This marks the second consecutive session of spread compression following last week's dramatic widening to 201 bps.

The sustained Treasury selloff has created breathing room for mortgage originators without forcing immediate rate adjustments, suggesting improved secondary market conditions. The 2-10 yield curve maintained its 47 bp steepness (FRED) while SOFR held at 3.60%, providing stable funding costs for warehouse lines. Consumer sentiment remains depressed at 53.3 (U. Michigan), while initial jobless claims of 200K signal continued labor market stability despite broader economic uncertainty.

For QC and risk teams, the consecutive days of spread tightening indicate secondary market buyers are re-engaging after last week's credit risk repricing. However, mortgage rates remaining sticky at current levels suggests lenders are rebuilding margins rather than passing through the full benefit of Treasury weakness. Monitor pipeline fallout rates closely as the 195 bp spread, while improved, remains elevated relative to historical norms and could pressure conversion metrics.