Rate lock volumes fell annually for a second consecutive month in September as mortgage rates surpassed 7% last month, Mortgage Capital Trading (MCT) said Tuesday.

The hedging and secondary markets advisory firm said lock volumes came in roughly 27% lower than a year ago, when steadily declining mortgage rates precipitated a surge in refinance demand that lasted into the first quarter of 2026.

Purchase locks this September were down nearly 12% from last year, however, while rate-and-term refinances were 82% lower. Rate locks were down more than 10% from July, reflecting a nearly 10% decline in purchase activity and an even larger drop in refinances.

“The mortgage market is cyclical,” said Andrew Rhodes, head of trading at MCT, in commentary accompanying the report. “We go through periods of high rates and low rates, and it always comes back around.”

How long it takes for the market to recover remains the million-dollar question.

Yields on U.S government debt to which mortgage rates are benchmarked rose sharply in September, with 10-year yields surging more than 50 basis points from the beginning of the month to around 5.29%. A Federal Reserve interest rate hike last month and investor expectations of more rate hikes to come amid elevated inflation contributed to the steep gains.

But demand for longer-term Treasury debt has also waned amid greater competition from corporate issuers seeking to fund the artificial intelligence build-out. Paired with consistently heavy Treasury issuance, supply-demand dynamics have shifted for longer-dated bonds, and investor returns on government debt must keep pace.

The softer-than-expected jobs report for September that landed last Friday reduced expectations that the Fed will raise rates in October when officials meet at the end of the month.

“Job growth still feels like it’s playing a secondary role to inflation given the geopolitical climate though,” said Rhodes.

Fiscal deficit concerns, ongoing wars in Ukraine and Iran, and near-term uncertainty related to November midterm elections all create a volatile backdrop for investors. But fundamental pressures driving mortgage rates higher remain unchanged, evidenced by 10-year yields that remained in the ballpark of 5.3% early this week.

Mortgage rates that have sustained their elevated levels above 7% for typical 30-year loans are now beginning to shift trading activity for mortgage-backed securities. Rhodes noted that MBS investors sold off 6-handle coupons last month, pushing rates higher across the board.

“We’re seeing more trades in the UM7 coupon now,” said Rhodes, referring to Fannie Mae and Freddie Mac’s uniform MBS offering, “with rates pushed higher by market volatility, the geopolitical situation and inflation expectations.”