Mortgage Rates Today, October 6, 2026: Rates Resume Relentless Rise

The bigger picture

There was no obvious trigger for yesterday's rising bond yields, one of which largely determines mortgage rates. "Bonds are continuing their trend," Steve Sosnick, chief strategist at Interactive Brokers, told The Wall Street Journal.

For now, increasing yields and mortgage rates seem to be caused by all the things we mention here most days: principally, a fear of inflation from the Iran war and too much government and corporate borrowing globally.

Scroll on down for much more on the forces affecting mortgage rates today, including the lone economic report on this morning's calendar.

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What's coming up?

Normally, economic reports are the main drivers of changes to mortgage rates. But these are not normal times.

And, until recently, only blockbuster reports, mostly concerning employment and inflation, have had an appreciable impact over much of this year. More important have been the general mood in markets and economically consequential news. News items concerning the war, employment, inflation, tariffs, and deficit funding are especially influential at the moment.

The Fed

On Sep. 16, the Federal Reserve's rate-setting body (the Federal Open Market Committee or FOMC) hiked general interest rates for the first time in three years.

That vote was unanimous. But official Fed documents revealed that FOMC members are deeply divided over what comes next.

"Sixteen of 19 officials expect another increase at either their October or December meeting," reported MarketWatch soon after the meeting. "For next year, 10 officials signaled they see no more moves, but eight officials are penciling in another quarter-point increase."

Such small majorities within the FOMC suggest the number and timing of future rate hikes will likely be driven by key data: inflation and employment reports in the coming months. The Fed's twin mandates are to keep the inflation rate down at around 2% (something it's failed to achieve over the last five years) and to maintain healthy employment levels.

Unfortunately, we think it is likely that inflation will remain elevated well into 2027, even if the Iran war ends soon. We suspect that the global oil market is in such bad shape that it will take a long time for gas and diesel prices to fall back to anything close to pre-war levels. More on that below.

And recent stronger-than-expected economic data mean we might not see rising unemployment, leaving the Fed free to focus on inflation.

Last week's PCE price index showed inflation rising more slowly than expected. And last Friday's jobs report showed a weaker employment market than expected. Those encouraged investors to think the FOMC might skip a rate hike at its next meeting on Oct. 28.

Last night, the CME FedWatch tool put the chances of such a hike at only 21.6%, down from 50.9% a week previously. However, the FedWatch tool reckons there's an 86.2% probability of a hike at the committee's following meeting on Dec. 9: 68.4% for a small, 25-basis-point (0.25%) increase and 17.8% for a larger 50-basis-point jump.

Tomorrow, we're due FOMC minutes from its last meeting. We already know quite a lot about what happened then, but if the minutes reveal new and surprising information, their publication might affect mortgage rates.

The FOMC 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 ahead of Fed rate-change announcements.

The war and mortgage rates

"The US is dispatching roughly 9,000 sailors and Marines aboard a flotilla of warships to the Middle East, a major naval buildup that could bring three American aircraft carriers to the region by late October or November as President Donald Trump warns that renewed strikes against Iran remain possible," reported Gulf News on Oct. 2. There are already 50,000 U.S. troops in theater.

Iran's forces comprise 640,000 regular troops and 350,000 reservists. Of course, U.S. troops are far better armed, trained, and equipped. But we suspect that the likely cost in blood and treasure will make any American president hesitate before launching a full land invasion.

So, we're guessing the Pentagon intends to mostly continue relying on airstrikes, with additional ground forces only in limited roles, if any. Seizing Kharg and Qeshm Islands seems one possibility.

The U.S. force surge may also be used to help Saudi Arabia, which, for some weeks, has been struggling to resist escalating attacks by Iranian-backed Houthi rebels, who are based in neighboring Yemen.

Oil prices moved higher on most September days. Still, last night, the price of global benchmark Brent crude was $100.22 a barrel, well down from $107.83 last Thursday evening.

On Sep. 25, the Iranian government offered a seven-day ceasefire, during which it said it would open the Strait of Hormuz and begin talks on nuclear weaponry. But the U.S. rejected the offer.

Peace talks with Iran and mediators had already stalled before recent escalations, and President Donald Trump adopted a new strategy of economic warfare on Tehran. "Treasury Secretary Scott Bessent said the U.S. is launching a new campaign to isolate the Iranian regime, warning that countries and companies that do business with Tehran will face the wrath of the Trump administration," The Wall Street Journal reported on Aug. 24.

Iran is certainly in a weak position economically, and waiting for it to buckle may be a smart way to resolve the conflict. However, markets remain anxious for a rapid resolution of the situation that permits the speedy normalization of oil markets.

The war, oil prices, inflation and markets

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

On Sep. 14, The Wall Street Journal reported on a gloomy outlook among oil industry leaders when they met in Austin, TX, the previous Friday. "American oil executives warned for months that the prolonged closure of the Strait of Hormuz was bound to cause a fuel crisis. Now, they say it is here.

"Commercial fuel stocks around the world have been depleting for more than six months, and strategic crude reserves can’t be tapped much further," continued The Journal. "Attacks last week shut down a crucial crude pipeline in Saudi Arabia that bypassed the Strait, stranding at least 2.5 million barrels a day from an already tight global oil market, analysts estimate."

"Exports of crude from the Strait of Hormuz have largely returned to levels seen before the outbreak of the Iran war, as oil producers and the shipping industry have found alternative ways of transporting crucial fuel out of the Middle East," reported The Guardian on Oct. 1. However, some remain skeptical of the claim, and that news has yet to significantly affect oil prices positively. Indeed, the price of Brent crude rose by 5.58% on the day the story ran.

Strategic petroleum reserves in the U.S. and elsewhere are at multi-decade lows, leaving 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 almost since the conflict began. And some observers worry that it will grow increasingly difficult to access remaining inventory for technical extraction reasons.

The U.S. Energy Information Administration says strategic petroleum reserve crude inventories fell to 283,767,000 barrels for the week ending Sep. 25, marking the lowest level since 1982. The reserve stood at 415,064,000 barrels before the Iran conflict began.

Rising oil prices tend to drive up mortgage rates because they're inflationary. Those rates are largely determined by a type of bond, the mortgage-backed security. And bond purchasers are wary of buying bonds when inflation is too warm because increasing prices eat into the value of the fixed incomes that bonds deliver.

The Refinery Problem

"'Consumers don’t buy crude oil. They buy gasoline, jet fuel and diesel,' Andy Lipow, president of Lipow Oil Associates in Houston, told The Wall Street Journal on Oct. 5. 'As a result of missile and drone strikes in the Middle East, several large refineries have been damaged. The world finds itself short of refined products.'

"The recovery in oil flows out of the Strait of Hormuz won’t fix the problem anytime soon. As of Saturday, the seven-day average for crude-oil cargoes clearing the critical waterway between Iran and Oman reached 10.3 million barrels a day, or 76% of the prewar baseline, according to the latest available data from market intelligence firm Kpler."

But current flows include only about half the refined products that used to flow through the Strait: 11% of overall flows rather than the pre-war 20%+.

That's because many oil refineries in the Middle East are out of commission due to damage from the Iranian war. Unfortunately, the exact same thing is happening in Russia owing to airstrikes on its refineries by Ukraine. So, the world is very short of refined oil products.

Regardless of oil prices, the refinery crisis has so far translated into gas prices that are significantly higher than a month ago and dramatically higher than a year ago, alongside diesel prices that have been frequently setting new all-time highs. 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 months. 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 products, 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."

On Sept. 23, Torsten Slok, Apollo's chief economist, explained in an e-newsletter why diesel is such an issue: "The US Gulf Coast diesel crack spread cleared $100/bbl for the first time on record in August against a normal range of $15 to $30," he wrote. "Unlike a gasoline spike, which lands on consumers as a one-time tax on discretionary spending, diesel is an intermediate input embedded in the delivered cost of nearly every physical good, from freight and rail to agriculture and construction.

"That means the rise in diesel prices does not stay in the energy line of the CPI [consumer price index] but migrates with a lag into core goods and services, which is exactly the kind of pass-through the Fed cannot dismiss as transitory," Slok continued. In other words, it creates sticky inflation that's hard to clean up.

The crack spread goes up and down, like oil and other commodity prices. On Oct. 4, RBN Energy put the crack spread globally (as opposed to the U.S. Gulf Coast specifically) at $64.65, pushing double the amount in August when Krugman did his calculations.

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 — as we've seen all too often — send them higher.

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, bond yields (and mortgage rates) have risen on concerns about the level of government debt, too.

Mortgage rates today

There is only one economic report on today's MarketWatch economic calendar. And it's one that rarely has a perceptible impact on mortgage rates.

It's the August U.S. trade balance. Markets expect the trade gap to have widened to -$102 billion, up from July's -$88.6 billion.

Typically, mortgage rates move higher on better-than-expected data and lower on worse-than-expected numbers.

What's next?

We're due FOMC meeting minutes on Wednesday, and the first reading of October's consumer sentiment index on Friday.

The U.S. Treasury is scheduled to auction $39 billion in 10-year notes on Wednesday. Weak demand at that auction could push mortgage rates higher because those rates often shadow that note's yields. An auction of 30-year Treasury bonds on Thursday might have a similar (though probably lesser) effect. However, unexpectedly strong demand might pull those rates lower.

We doubt other economic reports and events scheduled for this week will move mortgage rates far. However, other forces might.