The “spread”, the difference between discount rate and market rate, is largely determined by only two things, inflation and profit. If the fed charges them 4% and inflation expectations are 1%, they have to charge at least 5% to break even, so you’ll see 6% at the bottom for profit. If they fall behind in cash reserves, they need more of a profit margin to maintain business functions. Bonds do play a role as a gauge for profit expectations, but they don’t single-handedly determine market mortgage rates, they are just a measure for profit margins.

Inflation was reported at about 4% last year, and many are expecting 3% this year. This is why you see 2% fed rate and 6% market rate. It’s not the oil demon or anything other than basic fundamentals. The fed has lowered rates to give the banks more room for a spread and keeping rates at a level that people can accept while the election is going on.

After the election, when there won’t be immediate political fallout, expect rates to go up to both fight inflation and spreads to increase to rebuild capital reserves. This will continue the downward pressure on prices.