Research · October 10, 2026
Where mortgage rates go from 7.4%.
Base case: about 7% through 2027, with wide tails. Best case 6.15%, worst case 8.35% by April 2028. Here is how the rate is built, what the market already prices, and the lines that would change the call.
Data through October 9, 2026. Freddie Mac basis unless marked. Not a rate quote.
The answer
Three cases to April 2028
The 10-year falls to about 4.40%. Hormuz reopens for good, the Fed stops at 4.00% to 4.25%, and bond volatility breaks, so spreads tighten about 40 bp.
First tell: December 9 dots with no 2027 hike.
Through 2027, then about 6.80% by April 2028. Two more hikes, not the three futures price. Oil follows the futures curve. The long end stays heavy.
10-year 4.95% to 5.30% through 2027.
The 10-year goes to about 5.90%. Brent stays above $95, the Fed hikes three more times, Treasury raises coupon sizes, and Japanese yields keep climbing.
First tell: two 10-year closes above 5.40%.
The bands and weights are our judgment. The other 18% is a recession route, where the 10-year falls hard but spreads widen and the rate lands near 6% (8%), and a moderately higher 7.50% to 8.0% (10%). Probabilities are for where the rate sits in April 2028, not the path.
How the rate is built
7.48% is three pieces. Only one of them moved.
A mortgage rate is the 10-year Treasury, plus the spread of mortgage bonds over Treasuries, plus what lenders charge over those bonds. Built from daily closes, the 2026 rise was a Treasury event.
| Daily index basis | Feb 27, 2026 | Oct 9, 2026 | Change |
|---|---|---|---|
| 10-year Treasury | 3.94% | 5.24% | +130 bp |
| MBS over Treasuries | 90 bp | 112 bp | +22 bp |
| Lender rate over MBS | 115 bp | 112 bp | −3 bp |
| 30-year mortgage rate | 5.99% | 7.48% | +149 bp |
Our arithmetic on daily UMBS, Treasury and Mortgage News Daily closes. The par coupon is interpolated from the TBA price stack.
Spreads
Spreads are at fair value. When volatility breaks, they fall fast.
Outside the Fed's bond-buying years, the MBS spread is explained mostly by how volatile the 10-year is and how steep the curve is. On October 9 that fit gives 111 bp. The market was at 112.
Calm: volatility 60, a 100 bp curve. About 40 bp of relief all-in.
Today: volatility 89, a 45 bp curve. Fair, not cheap.
Sell-off: volatility 115, a 30 bp curve. 20 to 30 bp wider, not 2023's 60.
The old rule says spreads lag a rally. Over full rallies since 2023 the opposite happened whenever volatility fell: mortgage rates dropped 1.19, 1.30 and 1.66 times the 10-year's move. The one rally that lagged, early 2025, came with rising volatility.
Our fit on daily data since 2009, outside QE: spread = 67.1 + 0.628 × realized volatility − 0.276 × 2s10s. R-squared 0.77.
What the market prices
More hikes than the Fed, and oil falling.
| Fed funds, end of | Futures | Fed median |
|---|---|---|
| 2026 | 4.07% | 4.1% |
| 2027 | 4.69% | 4.1% |
| 2028 | 4.80% | 3.9% |
| Brent crude | $ a barrel |
|---|---|
| Spot, Oct 6 | 125 |
| December 2026 future | 104.72 |
| December 2027 future | 83.88 |
| December 2028 future | 76.48 |
Futures price about three more hikes and no cuts through 2028. Our base case assumes two, and oil a little below the futures curve. If the market is right, 2027 is spent near 7.5%. Rates gain from oil only if it falls faster than the curve already expects.
Fed funds and Brent futures closes, October 9, 2026. Federal Reserve projections, September 16, 2026. FRED DCOILBRENTEU.
The watch list
The line that changes the call.
| When | What | Lower rates if | Higher rates if |
|---|---|---|---|
| Oct 14 | September CPI | Core 0.2% or less | Core 0.4% or more |
| Daily | 10-year Treasury | Below 5.05%; below 4.75% opens the lower case | Two closes above 5.40% |
| Daily | MOVE bond volatility | Below 85 | Above 110 |
| Oct 28 | Fed meeting | A hold, no "consecutive" language | A hike |
| Late Oct | Fannie Mae and Freddie Mac MBS buying | Net buying above $15B a month | Net selling again |
| Nov 4 | Treasury refunding | Coupon guidance held | "Several quarters" pledge dropped |
| Dec 9 | Fed projections | 2027 median held at 4.1% | 2027 median 4.4% or higher |
| Rolling | Brent December 2027 future | Below $80 | Above $95 |
| Monthly | Core PCE, three-month pace | Below 2.3% for three months | Above 3% for three months |
| Monthly | Unemployment | 4.5% or higher: the 10-year falls, but spreads lag |
Thresholds are our judgment. Dates from the BLS, Federal Reserve and Treasury calendars.
The look back
6.64% to 5.98% to 7.40% in 18 months.
Tariffs and deficits held rates near 6.6% to 6.9% from April to July 2025. Weak jobs and three Fed cuts took them to 5.98% by February 26, 2026, the only week under 6% since September 2022. Then the Iran war took Brent from $71 to $138, headline CPI to 4.2%, and the Fed to a hike on September 16. The 30-year hit 7.40% on October 8. The Fed's rate is 50 bp lower than in April 2025. The mortgage rate is 76 bp higher.
Freddie Mac PMMS via FRED (MORTGAGE30US, DGS10, DCOILBRENTEU); BLS; Federal Reserve.
Read the full analysis.
34 pages, every figure dated and sourced: the look back, the ten drivers ranked, the dated calendar to April 2028, and what this research does not have.
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