Mortgage-Backed Securities Insights — Week of June 8, 2026

Hi, I’m Jerry Levy, Managing Director of Texas Capital’s Mortgage Security, Sales & Trading.

“There’s no reason to raise interest rates,” is what President Trump said this past weekend on a weekly network news show. But last week we had two: the blowout jobs report of 172,000 jobs that were added in May — with an additional 93,000 adjusted for the prior two months — and, in a way, there was an AI effect, this was for the construction for data centers. The private payroll number is now up to a healthy 166,000 per month average for the prior three months. Compare that to an 8,000 average for the period of three months ago to six months ago. The unemployment rate held steady at 4.3%, as did the labor participation rate at 61.8%, and average hourly earnings were stable at up 4.3%.

The only caveat to these stable-to-strong job numbers is that the hiring rate, as measured by the JOLTS report, remains historically low. Chairman Warsh has his dovish pathway blocked by May's 3.8% increase in the year-on-year CPI — this remains significantly above the Fed’s 2% target. These two numbers had a profound change to market sentiment and to U.S. trading levels, especially on Friday. The two-year begins today at 4.15% — that’s about 14 basis points up in the week and up 77 basis points from Feb 27 — that’s about 100 days ago and the start of the Mideast conflict. The 10-year at 455 is up 9 basis points in a week, and that’s up 59 basis points from that Feb 27 date. The curve is bearish flattening, with 2s/10s down to 38 basis points — that’s the flattest level since February of 2025. 

Going into the FOMC June meeting, we are now pricing greater than 100% chance of a hike by December 2026 — the end of this year — and 73% probability for a second hike by July 2027. A week ago, the forward curve for 2027 was flat, and we were actually pricing in an ease in 2028. 

Refi activity has fallen back to mid-2025 levels, and the refi trade going forward is basically dead, given the 6.50 to 6.625 level we open at this week for 30-year agency mortgages, and the fact that 80% of the 2023 to 2026 production was done below 7%. That means that those mortgages no longer have a 50-basis-point or greater incentive to refinance. While MBS net issuance is still running above 2024 and 2025 levels, May 2026 was actually lower than April 2026. That’s counter to the seasonal trend that usually happens, and what we had in the prior two years.

What do we think will happen given this trading? Look for headlines a month from now to say that 2026 agency net issuance has fallen below both 2024 and 2025. CMO issuance, at just over $40 billion in May, was up $14 billion from April and helped support the MBS basis, which opened at 112 this week — that’s just three basis points wider than the week before and the rates sell off. Further support for the mortgage market comes from the agencies — they bought $8.2 billion of securities in April, which was higher than March. They now hold a combined $340 billion, which is still $110 billion below their statutory $450 billion PSPA cap. We remain, as been the case for the last 100 days, subject to Middle East ceasefire headlines.

Up next, as we said, will be the FOMC dot plot projection and the updates, including the first Q&A from Chairman Warsh at the June FOMC meeting. The question will be: where will his bias be, and does he shift that to neutral or to easing? Thank you for listening. Please go to Texas Capital’s LinkedIn page for all our updates. Until next time.