Iran Conflict Extends 10-Year Yield to 4.60%, Impacts Mortgage Rates

The renewed missile and drone attacks from Iran, now extending into their 10th day, are impacting financial markets, particularly the 10-year Treasury yield which has reached 4.60% as of Monday. This development introduces a significant variable into mortgage rate forecasts, which had previously anticipated a range between 5.75% and 6.75% for 2026, with the 10-year yield fluctuating between 3.80% and 4.60%. These forecasts were designed to encompass various factors, including Federal Reserve policy, which was estimated to account for 65%-75% of the movement between the 10-year yield and mortgage rates.

While the initial forecast did not project mortgage rates above 6.75% for 2026, the conflict with Iran, which began in February, has altered the economic landscape. The bond market's aversion to prolonged geopolitical instability means that continued conflict could necessitate a revision of these projections. Even if the conflict were to cease immediately, the baseline pricing for the 10-year yield is now estimated to be between 4.46% and 4.48%. This adjusted baseline accounts for a strengthening labor market, inflation remaining above target, and the possibility of Federal Reserve rate hikes rather than cuts.

Consequently, the base level for mortgage rates is now expected to be between 6.50% and 6.75%. This range has remained relatively stable despite recent geopolitical events. A positive note for the housing market is the improvement in mortgage spreads compared to previous years, such as 2023, 2024, and 2025. This suggests that while yields may be rising due to conflict, the cost of originating mortgages has become more efficient, potentially mitigating some of the upward pressure on rates.