Mortgage Rates Today, August 21, 2026: Rates Bounce Back Modestly on Bond Jitters

The bigger picture

Mortgage rates chased 10-year Treasury yields and oil prices higher yesterday. And Wednesday's U.S. Treasury announcement that it would be doubling its buybacks of long-term notes and bonds ran out of steam.

We warned yesterday that "many doubt the difference [the announcement] made [on Wednesday] will last long." But even we weren't expecting quite such a brief benefit.

MarketWatch pinned the blame on the Treasury's plan with the headline, "Anxious bond market sends troubling message to investors: There’s no easy fix for U.S. debt." And one wag said the plan was like getting a cash advance on a new credit card and using it to pay the minimum payment on another card.

Scroll on down for details of today's economic reports and the impact they may have on mortgage rates — plus much more.

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What's coming up?

Although economic reports are usually the main drivers of changes to mortgage rates, they're not the only ones. The general mood in markets and economically consequential news can also affect those rates. News items concerning the war, employment, inflation, tariffs, and deficit funding are especially influential at the moment.

The war and mortgage rates

Peace talks with Iran or mediators have paused now but were underway after Aug. 1. They initially helped mortgage rates fall moderately.

While we all know how fragile such negotiations are and how hard it is to make deals stick, markets seemed happy to work with the hope of an imminent end to the conflict. However, that hope seems to be fading.

"Over the weekend [Aug. 8-9], Mr. Trump said his new strategy was to be 'low-keying it' in Iran, a suggestion that he wants to pressure the country into making a favorable deal without taking major military action," said The New York Times on Aug. 10. Judging by recent posts on Truth Social, that appears to remain U.S. strategy.

Iran is certainly in a weak position economically, and waiting for it to buckle may well be a smart way to resolve the conflict. However, markets are anxious for a rapid reopening of the Strait of Hormuz and seem to have taken the president's new position as a sign that the dispute could drag on for considerably longer than previously expected — hence the recent rises in oil prices and mortgage rates.

The war, oil prices, inflation and markets

Mortgage rates respond to war news because a prolonged closure of the Strait of Hormuz could again choke off 20% of the world's oil supply, putting additional pressure on gas, diesel and many other prices. It would take years to build the infrastructure necessary to bypass the Strait completely.

Strategic petroleum reserves in the U.S. and elsewhere globally are now at multi-decade lows, meaning there's less room to cushion consumers from rising gas prices. It may not feel like it, but this method of suppressing pump prices has been in place since the start of the conflict.

Trading Economics says, "US Strategic Petroleum Reserve crude inventories fell to 307.650 million [barrels, presumably] for the week ending July 24, marking the lowest level since 1983."

Meanwhile, many oil refineries in the Middle East and Russia are out of commission due to damage from the separate wars involving Iran and Ukraine. That began by sending oil prices lower on most days — though less consistently recently. Why buy crude oil when you can't refine it?

Unfortunately, that has so far translated into moderately higher gas and diesel prices than we were seeing a month ago. That's because a lack of refining capacity exacerbates rather than moderates supply issues for consumers and businesses, while demand remains fairly steady.

In his Substack post on Aug. 13, Nobel-prize-winning economist Paul Krugman backed up what we've been saying for some weeks. He referred to the "crack spread," which is the difference between the price of a barrel of crude oil and that for a barrel of "cracked" (aka refined) oil, which he said had exploded by about $35 since the start of the Iran conflict.

"So while the price of a barrel of crude is up around $25, the price of the products refined from that barrel is up about 25+35=60 dollars per barrel," wrote Krugman.

Why? "The shortage of refining capacity has, in turn, held crude prices down: Buyers aren’t willing to pay extremely high prices for crude oil they can’t refine," continued Krugman. "Or to put it a different but equivalent way, the cutoff of oil shipments through the Strait of Hormuz in effect required a large rise in global oil prices to ration demand, but much of that rationing has taken place through a rise in the crack spread rather than a rise in crude oil prices."

Of course, any sudden good news from the Middle East could still send mortgage rates tumbling, regardless of that day's economic reports. Unfortunately, sudden bad news could send them soaring.

The Fed

The Federal Reserve's rate-setting body (the Federal Open Market Committee or FOMC) left general interest rates unchanged on Jul. 29, as many expected. However, some now think a hike is likely at the next FOMC meeting on Sep. 16, according to the CME FedWatch tool.

Still, that's been changing. Last night, that tool showed a 36.2% chance of a small hike, up from 32.7% on Wednesday night. A week ago, investors put that chance at 40.6%, and a month ago at 51.2%.

That big drop was down to markets hoping that last Wednesday's CPI and last Thursday's PPI would allow the FOMC to hold general interest rates steady at its next meeting, especially following disappointing employment figures in the previous week's jobs report. They won't harm those chances, but the Fed will have seen August's CPI, PPI and jobs report by the time the committee next meets on Sep. 16.

Those August reports had better be good, because the minutes of the last FOMC meeting, published Aug. 19, showed a growing call among committee members for a hike to general interest rates if inflation fails to moderate consistently. "Federal Reserve officials indicated at their last meeting that they would need to raise interest rates soon unless there was more progress on bringing down inflation, minutes released Wednesday showed," CNBC reported that day.

Assuming that the war in Iran doesn't end quickly, we think a small hike remains a sensible expectation for Sep. 16. A prolonged conflict is likely to fuel inflation, and the Fed has a duty to maintain that at 2% annually, a goal reaffirmed by Kevin Warsh, the new Fed Chair, on Jul. 29. The main tool the Fed uses to rein in inflation is rate hikes.

The Fed doesn't directly set new fixed-rate mortgage rates. But the factors that influence its decisions (and to a lesser extent the decisions themselves) certainly do move those rates, usually in advance of Fed rate-change announcements.

Why bond markets act differently from stock markets

Mortgage rates are largely dictated by the yields on a type of bond, the mortgage-backed security (MBS). So, we focus on bond markets.

On May 7, The New York Times explored why stock markets and bond markets have been behaving so differently from each other since the start of the conflict in the Middle East.

Investors in stocks have been wagering that U.S. companies will continue to generate large profits during the conflict. And the stock market typically cares only about whether dividends and company values will continue to rise.

"But the bond market is another matter," said The Times. "Bond traders have maintained a much sharper focus on risk. Yields remain correlated with shifts in the price of oil. As oil prices have spiked and inflation has risen, yields have risen and bond prices, which move in the opposite direction, have fallen."

More recently, on Aug. 17, MarketWatch confirmed The Times's view: "The major reason stocks are holding up near record territory 'is that earnings seem to be fine regardless of higher rates,' said Melissa Brown, managing director of investment-decision research at SimCorp. But someday that is going to change as companies need to refinance."

Comerica Bank's outlook for this week

On Monday, Comerica Bank published its weekly outlook:

"The minutes of the Federal Open Market Committee’s July meeting are expected to show that inflation remains policymakers’ foremost consideration ahead of the next decision. The committee wants evidence that inflation is trending lower — i.e., lower core inflation — to feel comfortable refraining from a rate hike. The July CPI and PPI reports narrowly met that bar, but are not the last word since the August CPI and PPI reports will be released before the September meeting.

"Industrial production is forecast to grow solidly in this release as the hottest July on record fueled utility demand. Manufacturing output likely rose moderately, supported by strong demand for defense products and the electronic, electrical, and construction materials used in data centers. Pending home sales likely rebounded after a drop in June, and rose moderately from a year earlier. The Services PMI published by S&P Global likely pulled back in the August preliminary release after the boost from the World Cup faded."

Comerica's forecasts are sometimes different from published market expectations, which are drawn from a broader pool of analysts' consensus forecasts.

Mortgage rates today

There are two economic reports on today's MarketWatch economic calendar. They're both August purchasing managers' indices (PMIs) from S&P Global, one for the services sector and the other for the manufacturing sector.

PMIs can be useful because they measure activity in organizations' purchasing departments, which is a useful indicator of future economic activity. However, those from S&P Global tend to be less influential than those from the Institute for Supply Management.

Today's PMIs are:

• August manufacturing PMI — Markets expect the index to inch up to 54 from 53.8 previously
• August services PMI — Markets expect the index to edge up to 53.9 from 53.6 previously

Typically, mortgage rates rise when economic data are better than expected and fall when they're worse. On-forecast figures often leave those rates unchanged.

What's next?