WTMS Blog Today = What’s up in Mortgage Today (PM) – 12/31/2025

Automated algorithms dominated trading on this abbreviated New Year’s Eve session, pushing mortgage-backed securities lower after an unexpectedly strong jobless claims report. Initial claims plummeted to 199,000, well below the 220,000 forecast, triggering systematic selling in rate-sensitive assets. Human traders remain largely absent, but the trading robots responded predictably to what appeared to be encouraging labor market data.

The sub-200k claims reading likely reflects seasonal adjustment quirks rather than genuine economic strength, as Christmas falling on a Thursday creates statistical distortions similar to what we saw after Thanksgiving. For mortgage originators, this means rates moved higher without solid fundamental justification, potentially creating opportunities for borrowers who can act quickly in the new year. Federal Reserve Division Deepens

Minutes from the Fed’s December meeting revealed significant splits among policymakers about the path forward for interest rates.

Most officials still expect additional rate cuts if inflation continues declining, but several members argued for keeping rates unchanged “for some time.” This internal disagreement creates uncertainty that mortgage markets will need to navigate in 2026. The 9-3 vote to cut rates by a quarter point masked deeper divisions, with six officials actually opposing the move by projecting higher year-end rates in their forecasts. Governor Stephen Miran dissented for a larger half-point cut, while Chicago’s Goolsbee and Kansas City’s Schmid wanted no cut at all.

These divisions suggest future Fed decisions may become increasingly unpredictable, adding volatility to mortgage pricing. Market Positioning for 2026

Agency MBS supply is expected to remain around $1.4 trillion next year, but the composition could shift dramatically toward adjustable-rate mortgages if the yield curve continues steepening. Today’s ARMs target higher-income borrowers who must qualify at terminal rates, making them attractive for bank relationship strategies rather than affordability solutions.

ARM share of Agency issuance has already risen to 1.7 percent this year from less than 1 percent during the quantitative easing era. The yield curve steepening trend, driven by potential Fed cuts amid persistent federal deficits, could push ARM issuance significantly higher in 2026. For originators, this represents both opportunity and challenge as ARM products require different expertise and client education compared to traditional fixed-rate mortgages.

Locking vs Floating

Markets are entering peak holiday mode where wider ranges of movement can happen without apparent reason, even though rates typically drift sideways in late December. With the next consequential volatility risk not arriving until early January events, originators should focus on near-term closing schedules. Current market conditions suggest defensive positioning for loans closing within the next two weeks.

Today’s Events

Continued Claims (Dec 20): 1,866K vs 1,923K previous
Jobless Claims (Dec 27): 199K vs 220K forecast, 214K previous

Bond Pricing

UMBS 30 yr
| Coupon | Price | Intra-Day Change |
| 5.0 | 99.82 | -0.09 |
| 5.5 | 101.43 | -0.06 |
| 6.0 | 102.67 | -0.03 |

GNMA 30 yr
| Coupon | Price | Intra-Day Change |
| 5.0 | 99.83 | -0.06 |
| 5.5 | 100.98 | -0.03 |
| 6.0 | 101.91 | 0 |

Treasuries
| Term | Yield | Price | Intra-Day Yield Change |
| 2 yr | 3.463 | 100.071 | 0.013 |
| 3 yr | 3.519 | 99.948 | 0.008 |
| 5 yr | 3.698 | 99.672 | 0.02 |
| 7 yr | 3.911 | 99.022 | 0.031 |
| 10 yr | 4.143 | 98.843 | 0.02 |
| 30 yr | 4.819 | 96.945 | 0.013 |