Sure, the Stock Market Has Been Improving. But Do Not Forget the Bond Market

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The press often focuses on the stock market. People easily relate to well known companies like Apple, Pepsi, IBM, Facebook, and anything tied to AI. What many do not realize is that the average daily trading volume of U.S. Treasury instruments, including bills, notes, and bonds, is five to ten times greater than the combined volume of the New York Stock Exchange and NASDAQ. When corporate debt, municipal bonds, and mortgage backed securities are included, fixed income markets far outweigh equities in overall activity.

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Why the Bond Market Matters to Mortgage Rates

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What does this mean for Orion brokers and their borrowers. Mortgage rates and pricing shown on rate sheets are directly tied to the pricing of mortgage backed securities. Those prices are driven largely by supply and demand. Over the past several weeks, these forces have remained relatively balanced, which explains why rates have stayed within a narrow range, even as they have edged slightly lower.

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Investment decisions are typically made based on expectations of future economic conditions. When demand for an investment increases, prices rise. When demand falls, prices decline. Mortgage backed securities have a price, a face value, and a stated yield. While it can sound complex, the relationship is straightforward. When prices go up, interest rates go down. When prices go down, interest rates go up.

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Economic Signals and Their Impact on Rates

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Economic news plays a major role in bond and MBS pricing. Positive economic data often leads investors to expect higher inflation or stronger growth, which tends to push bond prices down and rates up. Negative economic news generally has the opposite effect, driving prices higher and rates lower. While lower rates are appealing, they often coincide with slower economic growth, weaker employment, or declining consumer spending.

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Orion brokers frequently explain to clients that rising unemployment and reduced consumer spending typically signal a slowing economy, which can support lower mortgage rates. Another important factor in recent years has been the Federal Reserve. During 2020 and 2021, the Fed purchased large volumes of mortgage backed securities to support housing markets and keep rates low. When those purchases ended, private investor demand had to fill the gap, contributing to higher rates.

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As 2026 begins, many market participants believe the economy may not be strong enough to justify significantly higher rates. While predicting interest rates is never exact, understanding the forces that influence them is critical. Orion AEs are always available to help brokers navigate these market dynamics and identify programs that best support their borrowers.

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