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Market Analysis 1.6.26: Bonds Improve

GGood Tuesday AM from your Hometown Lender,

Yesterday saw mortgage bonds improve a bit through the late morning and then level off in the afternoon, ending the day slightly better. Trading volume for MBS (mortgage-backed securities) was back to normal pre-holiday levels. Rate sheets yesterday were a bit better, but not much.

For today, rates are about the same as yesterday, bonds starting the morning off with a bit of drifting lower, basically giving up yesterday’s small gains. Reprice risk on the day is low, because although this is a chock-full week of labor data, it doesn’t really kick in until tomorrow. There’s nothing on the economic calendar today to worry about. Rates aren’t going to make any big moves today, and probably not any small ones either.

Market analysis from a higher level:

Markets came back from the holidays caffeinated, not hungover: stocks are flirting with new highs, the 10-year is hanging out near four-month highs, and mortgage rates are still parked in the low-6% range.

Mortgage Market & Rate Outlook — Tuesday, January 6, 2026

Market analysis quick snapshot

  • 10-year Treasury: ~4.19%, up a few basis points from Monday and near the highest levels since late summer. Trading Economics+1
  • Yield curve: 10-year now yields roughly 0.7% more than the 2-year, the steepest positive slope in many months, as investors demand more compensation on the long end. YCharts
  • National average mortgage rates (high credit, 20% down, no points): Money
  • 30-yr fixed: ~6.34%, up 0.01% vs yesterday
  • 15-yr fixed: ~5.74%, a touch lower
  • 7/1 ARM: ~5.88%
  • 10/1 ARM: ~6.04%
  • Refi averages:
  • 30-yr fixed refi ~6.38%
  • 15-yr fixed refi ~5.73%

Big picture: after drifting lower since mid-summer, national averages are now holding in a tight low-6% range, and most forecasters expect that general neighborhood to stick through much of 2026. Money

Market analysis – what’s moving markets today

1. Services economy: still expanding, but slower

  • The S&P Global U.S. Services PMI for December came in at 52.5, down from 54.1 in November and below earlier estimates around 52.9. Trading Economics+1
  • Anything above 50 still signals expansion, but this is the slowest pace in roughly eight months – classic “soft-landing” vibes: cooler, not collapsing.

For rates: slower services growth helps the case for future Fed cuts, but it’s not weak enough to force their hand right now.

2. The Fed: “delicate balance” and near neutral

Two key Fed voices are setting the tone this week:

  • Richmond Fed President Tom Barkin said policy is now “within the range of neutral”, where rates neither really push nor brake the economy. He emphasized a “delicate balance” between not letting inflation expectations re-ignite and not damaging the labor market. SRN News
  • He reminded everyone that:
  • Unemployment is still low, but has ticked up.
  • Inflation is much lower than the peak, but still above the 2% target.
  • After the December cut, the Fed wants more data before moving again.

Futures agree with the “hurry up and wait” theme:

  • CME FedWatch is pricing ~83% odds of no change at the January meeting and only about a 17% chance of a 0.25% cut. KuCoin

Translation to borrower-speak: The Fed is off the brake, but they’re not stepping on the gas yet. Policy is less restrictive than mid-2025, but not truly easy.

3. Miran’s dovish push: “well over 100 bps” of cuts

To keep it interesting, Fed Governor Stephen Miran went on TV this morning and said he thinks “well over 100 basis points of cuts are going to be justified this year,” arguing policy is still clearly restrictive. The Edge Malaysia

That’s notably more dovish than the Fed’s own December dot plot, which showed a median of only one more 0.25% cut penciled in for 2026. Investopedia

So the setup is:

  • Barkin: “We’re near neutral; let’s be careful.”
  • Miran: “We’re too tight; we’ll probably cut more than markets think.”
  • Futures: Split the difference, leaning toward 1–2 cuts later in 2026, depending heavily on the jobs and inflation data coming in over the next few months. The Motley Fool+1

4. Risk-on mood: stocks up, yields up

Market analysis – equities are behaving like 2025 never ended:

  • The Dow is hovering near fresh record highs, with the S&P 500 and Nasdaq modestly green after yesterday’s strong start to the year. Mortgage News Canada+1
  • Energy stocks are getting a boost from the Venezuela situation and shifting expectations around future oil supply and U.S. involvement there. Investopedia+2The Economic Times+2
  • AI and chip names are back in the spotlight thanks to big announcements out of CES in Las Vegas, reinforcing the “growth and tech” narrative from 2025. Investopedia

For rates, a risk-on equity tape plus solid economic data usually means:

  • Money rotates out of Treasuries, nudging yields higher.
  • That’s exactly what we’re seeing with the 10-year near 4.19%, and the 2-year around 3.5%. The Washington Post+1

5. Market analysis – under the hood: MBS are still in a good place

On the mortgage-bond side:

  • 2025 was a banner year for agency MBS, with total returns around 8.6% — the best since 2002. Mortgage News Canada
  • Banks, REITs, and the GSEs all ramped up their MBS buying as the Fed continued to let its portfolio slowly run off, and that private demand helped tighten MBS spreads versus Treasuries. Mortgage News Canada
  • Street research expects more spread tightening in 2026 thanks to:
  • Strong demand from banks getting comfortable with MBS again, and
  • Only modest net new supply as refi and purchase volumes remain below the 2021 frenzy. Mortgage News Canada

Why you care: even when the 10-year drifts higher like it has the past few days, healthier MBS spreads keep mortgage rates from rising 1-for-1 with Treasuries. That’s a quiet tailwind for borrowers.

This week’s data & market analysis to watch

Rough road map for the first full week of 2026: Schaeffers Investment Research+2Kiplinger+2

  • Today (Tue 1/6):
    • Final S&P U.S. Services PMI (Dec) – already out at 52.5 vs 54.1 prior.
    • Fed’s Tom Barkin “2026 Outlook” speech (we got the “delicate balance” soundbites this morning). richmondfed.org+1
  • Wednesday (1/7):
    • ADP employment report (Dec)
    • ISM services index
    • JOLTS job openings
    • Factory orders
  • Thursday (1/8):
    • Weekly jobless claims
    • Trade balance, productivity, consumer credit
  • Friday (1/9): The main event
    • BLS jobs report (Dec): payrolls, unemployment rate, wage growth
    • UMich consumer sentiment
    • Another Barkin appearance

The jobs report on Friday is the big rate-mover. A soft report strengthens the case for more cuts (good for rates); a hot report keeps the Fed on hold longer (upside risk to rates).

Market analysis – what this market analysis means for buyers, sellers & owners

Affordability snapshot

  • Compared with the peak 7%+ rates we saw not that long ago, today’s low-6% national averages mean meaningfully lower payments. Based on a ballpark:
  • On a $500,000 loan, moving from 7.0% to 6.25% saves roughly $250/month in principal & interest. (Your actual numbers will vary with credit, term, and loan type.)
  • Freddie Mac’s weekly survey has the 30-year fixed around the mid-6s, the lowest levels of 2025 as of late December, and trend pieces now project rates staying in the low-6s through much of 2026, assuming inflation continues to behave. Money+2IndexBox+2

For active buyers

  • Rate environment: Not “cheap money” like 3%, but meaningfully better than the mid-7s and 8% scare stories from the headlines.
  • Strategy right now:
  • Focus on total monthly payment, not just rate — taxes, insurance, and HOA can move the needle just as much.
  • Use the current stability in the low-6s to get into contract with less drama around daily rate swings.
  • Keep flexibility: structures like no-point loans or modest buydowns can set you up to refi later if we actually do get Miran’s “well over 100 bps” of cuts.

For sellers and listing agents

  • A more stable low-6s backdrop + slower but still-positive services growth is a decent combo:
  • Buyers are less rate-shell-shocked than last year.
  • Economic data still points to growth, not recession.
  • The big wild card remains Friday’s jobs report: a very weak print could spook sentiment (and help rates), while a strong print keeps rates sticky but supports incomes and demand.

For current homeowners & refis

  • A lot of people who bought or refi’d in the high-6s / low-7s range in 2023–2024 are now in a “maybe worth a look” zone:
  • With national refi averages around 6.38% today, some households are close but not quite to a refi win; others (especially with 7%+ loans and other debt to consolidate) may already pencil out. Money+1
  • The refi math now depends heavily on:
  • Remaining term
  • Balance size
  • How long you expect to keep the property
  • Whether you’re rolling in higher-rate consumer debt

How I’d frame lock/float conversations today

Not advice for any specific borrower, but here’s how I’d talk through it with clients:

  • Closings in the next 15–30 days:
    • We’re near a local high in the 10-year, and Friday’s jobs print can easily push rates either way. With odds skewed toward a Fed hold in January and a risk-on equity tape, I’d lean slightly toward locking once you’re happy with the payment, especially on tighter budgets. Trading Economics+1
  • 45–60+ day timelines (new builds, longer escrows):
    • There’s a reasonable path where:
    • Jobs and inflation cool just enough,
    • The Fed waits in January, and
    • We see a gradual drift lower in yields later in Q1/Q2 if the data cooperates.
    • In that window, I’d consider:
    • Lock with a float-down if available and affordable
    • Or a very intentional float with the understanding that Friday’s jobs, wage data, and Fed optics can still push us a leg higher before we go lower.
  • Structuring strategy (product mix):
    • Fixed vs ARM: With the curve now meaningfully positive again, the ARM discount vs 30-year fixed is modest but real; that can make sense for:
    • Strong savings and stable income
    • Shorter expected time in the home
    • Buydowns: 2-1 or 1-0 buydowns still make sense in specific cases, but they’re a tool, not a magic wand. I’d rather make sure the permanent structure works even if rates don’t fall as fast as Miran hopes. The Edge Malaysia+1

As always, the right game plan is case-by-case: credit, time horizon, cash, and risk tolerance matter more than today’s headline rate.

Stay safe and make today great!