The Regime Change to Fear, the Regime Change for Interest Rates!

While the word "regime" is often seen in a geopolitical context, it's also common in financial markets. With respect to rates, the most recent regime involved steady improvement starting in May 2025 and ending 3 weeks ago. Since then, a new regime has been taking over, and it kicked into high gear this week.
Under the previous regime, bonds (which dictate rates) were operating on the following principles:
generally stable economic data, but with some uncertainty about the strength of the labor market
gradually cooling inflation that was likely to continue
central banks (like the Fed) that were expected to cut rates by September and then hold steady before cutting rates again when data allowed
Treasury issuance (bad for rates) that was at least flat and had some hope of remaining that way
Under the new regime, which began with the Iran war but kicked into higher gear over the past 3 days, bonds are thinking about:
inflation that was still too high for the Fed to cut rates, even before recent events
an oil/energy/material price spike that further exacerbates global inflation expectations
the same old uncertainty about the labor market, but not enough of it to really help rates
Treasury issuance that is likely to increase due to war funding and tariff refunds
Obviously oil prices have been a dominant focus for the bond market for the last month, however the bond market move is nowhere near as significant as the oil move in the bigger picture.
Rates also had their own reason to move higher once ed kicked things off on Wednesday when Powell said the Fed would need to see improvement in "core goods" and "non-housing services" inflation before considering another rate cut, and that this was true even before considering impacts from rising oil prices.
Markets didn't love that, but they might have been able to cope with it a bit better however the European bond markets were in panic mode with British yields surging to the highest levels since 2008. Easy to understand the concern in those markets (which are infinitely more dependent on imported petroleum products than the U.S.).
Any time the broader bond market is doing what it's doing, mortgage rates probably aren't having a good time, and last week is no exception. After hitting 5.99% as recently as 3 weeks ago, daily top-tier rate indexes are back to over 6.5%--highest since September 2025.

For the latest Weekly Report on Housing Inventory & Sales in Santa Rosa East go to 95404realestatepro.com, or call Frank Darien, 707-799-7472, [email protected].
Editorial Credit: Kyle Nicholas McCray