Insights 
VT 
For the week ending 2 May 2025, mortgage applications in the US increased by 11.0%, according to the Mortgage Bankers Association. This marks a recovery from the previous week’s decline of 4.2%.
Both purchase and refinancing activities saw an upturn, contributing to this growth. However, the average rate of the most popular US home loan remains high, hovering just below 7% after a notable rise in April.
Mortgage Application Insights
The noted rise in mortgage applications for the week ending 2 May 2025, up by 11.0%, tells us something fairly direct about current borrower behaviour — despite high borrowing costs, demand has bounced back. This appears to follow a somewhat lacklustre week prior, which featured a 4.2% drop in applications. As we’ve seen before, a couple of active days in the bond market can set off a reaction, which then shows up here in mortgage data a week or so later.
What stands out more though is not so much the swing upwards, but that it happened while the average 30-year fixed rate hangs just below 7%. That’s not small. It reflects sustained pressure in funding markets and broader expectations around rate cuts coming later than thought. People still borrowing at these levels — for both new home purchases and refinancing — indicates either a shift in sentiment or perhaps a belief that rates may not fall much soon. There’s always the chance too that folks are readjusting expectations after months of waiting on the sidelines.
From our perspective, this bit of data feeds directly into short-term rate positioning, particularly in rates volatility trading. We should treat these kinds of weekly figures as more than just housing stats — they serve as a form of sentiment gauge. When purchase and refi levels both move up at the same time during a high-rate period, it tends to reflect confidence that borrowing conditions aren’t worsening further — which makes short-end steepening trades less attractive in the immediate term.
Recent Policy Impacts
From Powell’s remarks last week and recent FOMC minutes, we already had a sense that policy will remain tight longer than many originally pencilled in. This acts as a weight over the belly part of the curve, but has kept the frontend stubbornly grounded. That situation doesn’t favour a meaningful fade in implied vol. A decent bit of the recent flattening has been unwound, but strength in mortgage activity — particularly this broad-based — could stall any immediate steepening. We can’t move too fast on rate-cut-dated positions just yet.
Also keep in mind that mortgage rates respond less to the Fed funds rate directly and more to the 10-year yield. The fact that activity bounced before yields made a persistent move down suggests that household expectations are now in flux. If we see follow-through next week, things might start looking a bit too hot for comfort for policymakers. That would likely keep pressure up on swaps spreads and act as a minor drag on duration-heavy exposure.
All told, in pricing terms, this data raises questions more than it settles them. If housing activity perks up this strongly while lending rates remain elevated, it’s not what usually happens when a downturn is underway — and that matters for how options are priced across the curve. A data point like this can shift skew and influence the upper strikes in payer ladders across multiple tenors, especially those aligned with cuts in late Q3 or Q4. The shape of SOFR futures tells us not enough of that is priced in yet.
From here, we watch to see if next week shows continuity or if this week’s pop is just mean reversion. Either way, the window for adding low-delta exposure at attractive levels is shrinking.
