Primary Spreads Compress to 191 bps as Treasury Yields Surge Higher

Primary mortgage spreads compressed another 5 basis points to 191 as Treasury yields surged while mortgage rates remained anchored at 6.65% (Freddie Mac PMMS). The 10-year Treasury yield climbed 5 basis points to 4.74% (FRED), marking the second consecutive session of Treasury underperformance relative to mortgage securities. The 2-year Treasury also moved higher by 5 basis points to 4.24%, maintaining the yield curve slope at 50 basis points and suggesting continued expectations for Fed policy normalization.

The 191 basis point primary spread represents a 9 basis point contraction from Friday's 200 level, indicating mortgage originators may be gaining pricing power as secondary market conditions stabilize. With 15-year rates holding at 5.95% (Freddie Mac PMMS), the 15-year to 10-year spread remains at 121 basis points, suggesting consistent demand across mortgage durations. SOFR's stability at 3.65% continues to anchor short-term funding costs for portfolio lenders.

For QC and risk management teams, the rapid spread compression warrants monitoring of lock desk hedging ratios and pipeline sensitivity. The combination of rising Treasury yields and stable mortgage rates suggests secondary market buyers are absorbing supply at current levels. However, with consumer sentiment remaining depressed at 49.5 (University of Michigan) and jobless claims steady at 206K, demand fundamentals remain mixed, potentially limiting further rate declines despite favorable technical conditions.