MBS Road Signs 10-27-2025
MBS Road Signs 10-27-2025
Week of October 20, 2025 in Review
Even with the government shutdown delaying some reports, key updates arrived on inflation and housing. Read on for important takeaways.
Consumer Inflation Better Than Expected
September Existing Home Sales Tick Higher
What to Look for This Week
Technical Picture
Consumer Inflation Better Than Expected
Inflation edged up modestly in September, with the Consumer Price Index (CPI) rising 0.3% for the month and 3% year-over-year – both slightly below forecasts. The increase was largely driven by higher energy costs, particularly gasoline prices, which jumped 4.1%.
Core inflation – which excludes food and energy – rose 0.2% for the month and eased from 3.1% to 3% annually, also coming in below analysts’ expectations.
Shelter costs are a key driver of inflation, making up 35% of headline CPI and 44% of core CPI. Because of this heavy weighting, shifts in housing costs have an outsized impact on overall inflation. Cooler shelter readings in September helped keep inflation below expectations.
What’s the bottom line? The Fed continues to walk a fine line – inflation is still above target, but the economy and job market are showing signs of slowing. Markets are anticipating another quarter-point rate cut at the Fed’s October 29 meeting, following a similar move in September. The goal is to support growth amid softer labor conditions and lingering inflationary pressures.
Quick reminder: When the Fed adjusts rates, it’s targeting the Federal Funds Rate – the short-term rate banks charge each other for overnight loans. This influences overall borrowing costs but doesn’t directly set mortgage or other long-term rates.
September Existing Home Sales Tick Higher
The National Association of REALTORS® (NAR) reported that existing home closings rose 1.5% from August to September, slightly below expectations but still 4.1% higher than a year ago. Inventory increased to 1.55 million units, matching a five-year high, though remaining below pre-COVID levels.
What’s the bottom line? Since this data reflects September closings, most buyers were shopping in July and August – before mortgage rates began easing more notably. This suggests upcoming reports could show stronger sales activity. As NAR Chief Economist Lawrence Yun noted, lower mortgage rates and improving affordability are helping to boost demand.
What to Look for This Week
The Federal Reserve begins its two-day policy meeting on Tuesday, with a decision on interest rates and a press conference scheduled for Wednesday afternoon. As noted above, markets widely expect another 25-basis-point cut to the benchmark Fed Funds Rate.
On the housing front, we’ll see Case-Shiller home price appreciation on Tuesday and September’s Pending Home Sales from the NAR on Wednesday.
Technical Picture
Mortgage Bonds continue to trade between support at the 25-day Moving Average and resistance at 101.31. Bonds have tested this ceiling several times in recent days but haven’t been able to break above it. The upcoming Fed meeting could be the catalyst for a move.
The 10-year Treasury yield ended last week testing the 4% ceiling, which is a key level to watch. If yields stay below 4%, a favorable Fed outcome could push them toward 3.92% or even 3.80%. However, a break above 4% would likely send yields up to the next resistance level at the 25-day Moving Average near 4.085%.