US mortgage rates have reached 7%, increasing by 40 basis points in recent trading days. This rise indicates ongoing challenges in the housing market as the spring buying season approaches.
We’ve already seen mortgage rates jump to 7%, a sharp 40 basis-point climb over just a few days. That sort of movement tells us something’s shifting. It points to more than just an adjustment—it’s a reflection of sellers and buyers pushing up against the same tight conditions we saw last year. The rise is particularly telling given how close we are to the traditional homebuying upswing in spring. When rates tick higher in an already-stressed environment, it tends to filter through broader linked assets without much delay.
Fed Rate Expectations
Now, Powell’s latest comments during his minutes and public remarks showed little appetite for immediate rate cuts. That absence of urgency comes through loud and clear. By holding rates steady while still acknowledging disinflation progress, he reinforced the view that any loosening will occur more slowly than markets had priced in earlier this year. That’s pushed rate expectations upwards across durations, which is now showing itself not only in Treasuries but clearly in mortgage-backed products and other consumer-adjusted instruments as well.
By contrast, Brainard recently pointed out household strength and a steady labour market. It’s a view that leans somewhat dovish compared to Powell. But we’re noting that inflation, particularly in services and shelter, hasn’t cooled quite enough to tip the balance toward action. And the bond market doesn’t often operate on rhetoric—it needs confirmation. Which we haven’t had.
For us tracking the derivatives side, this is where attention falls—on the spacing between implied and realised volatility, and how funding pressures, particularly in the short term, find their way into options pricing. The recent spike acts almost like a spring being compressed. It starts slow. Then it releases.
What’s important now isn’t just the higher mortgage rates. It’s what they hint at elsewhere. The knock-on effect matters. Credit spreads are reacting. Longer-duration hedges aren’t behaving uniformly. And positioning going into the next payrolls report is looking far more cautious than usual—even with employment reading steady.
Global Policy Differentials
We’re watching the next CPI print to see whether services disinflation reasserts itself or stalls. That’s being mirrored in gamma at the front end. Skew remains directional, which tells us traders are still leaning into macro momentum trades rather than trying to hedge event risk neutrally. There’s still plenty of two-way interest, but less appetite for idiosyncratic trades tied purely to earnings or sector-specific news.
With rate vol elevated and cross-currency spreads widening again, attention is moving to how global policy differentials will start to impact dollar positioning at the margin. We’ve seen this underpin certain funding currencies and boost activity in 6-month and 9-month tenors, especially where carry now exceeds historical norms.
While short-end futures have reset marginally, the reaction across swaptions implies we aren’t seeing a shift in sentiment—just in timing. That should frame our view for expiry cycles across April and May. Directional trades are being held longer, while theta decay is being more actively managed with volatility overlays rather than fully closing exposures.
In short, the rates move has started pressing into core valuation models, and leveraged desks are in adjustment mode. There’s limited room for error. We’re reading it as time to be selective in duration and very deliberate in curve strategies over the next two weeks. The options surface agrees.
