Shutdown Watch
How a Government Shutdown Hits Mortgage Rates & Markets
Today’s Takeaway
- Shutdown risk is elevated; markets typically see a flight-to-safety bid into Treasuries in the early innings.
- That can nudge 10-year yields lower short-term, helping mortgage rates drift down — while processing frictions (IRS/SSA/USDA/FHA) can slow closings.
- Longer or messier standoffs can widen MBS spreads and re-apply upward pressure to rates.
History Snapshot
| Episode | Short-Term | Longer-Run |
|---|
| 2013 (16 days) | Rates ↘ / Volatility ↗
Processing bottlenecks for FHA/USDA/IRS verifications. | Levels normalized post-deal; path returned to macro/inflation trends. |
| 2018–19 (35 days) | Rates mixed
Longest shutdown on record; broad admin disruptions. | Market effects faded; costs absorbed into growth/deficit outlook. |
Historical analyses often show 10-yr yields flat to lower during shutdowns, with impacts fading after funding resumes.
Risk Map
What Would Push Mortgage Rates Back Toward 7%?
- 10-yr Yield Rebounds on credit/fiscal worries or data surprises.
- Sticky Inflation keeps the Fed cautious; slower easing path.
- Wider MBS Spreads from volatility or investor risk aversion.
- Geopolitical / Policy Shocks that sour bond demand.
Quick lens: Watch the 10-yr yield (~4%–4.5% band lately) and primary/secondary spreads; if yields rise and spreads don’t compress, 7% talk returns.
Most Possible Outcome
🔮 Most Possible Outcome: Path to Below 6% Mortgage Rates
- 10-yr Yield ~3.5% on a sustained basis (not a one-day dip).
- Core inflation trending durably toward 2% (CPI/PCE).
- Fed signaling a path of cuts, not one-and-done.
- Tighter mortgage spreads as volatility cools and MBS demand firms.
- No new shocks (tariffs/escalations) that re-widen spreads.
We’ll break down each ingredient on tomorrow’s Opening Bell and track progress weekly.
Tools
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Contact & Disclosures
Connect with Dan Frio — The Rate Update (TRU)
Email: Dan@therateupdate.com
Website: therateupdate.com
YouTube: @TheRateUpdate
Required Disclosures
- For educational purposes only. This is not a commitment to lend. All loans subject to credit approval, underwriting guidelines, and available program terms.
- Rates and terms subject to change without notice and may vary based on credit score, loan-to-value (LTV), occupancy, property type, and other factors.
- APR vs. Rate: Annual Percentage Rate (APR) may differ from note rate due to fees and points; a full Loan Estimate will provide details specific to your scenario.
- Third-party verifications: Government shutdowns can delay IRS transcripts, SSA verifications, USDA/FHA/VA processing, flood insurance, and related services.
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