July 2025 painted a complex economic picture for the United States.
After a slight contraction of 0.5% in real GDP during Q1 2025, the economy is estimated to have rebounded in Q2. The labor market, while showing signs of cooling, remains relatively stable. The unemployment rate ticked down to 4.1%, remaining within a narrow range seen since May 2024.

The US and the European Union have agreed to a deal setting a 15% tariff on most EU goods, a reduction from previously threatened higher rates (e.g., 30%). However, this still represents a significant increase from prior levels for many EU products. Inflation has been increasing; a trend tariffs are projected to continue fueling. Accordingly, the Federal Reserve is expected to hold rates steady for now.

Consumer debt is at an all-time high with a notable increase in delinquencies, particularly in student loans.

Geopolitical tensions continued, with the conflicts between Russia-Ukraine and Israel-Hamas persisting. Facing potential new sanctions, Russia has been given "10 or 12 days" by President Trump to reach a peace agreement in the ongoing war with Ukraine. Gaza is now grappling with a severe, escalating humanitarian crisis, with UN-backed food security experts indicating a "worst-case scenario of famine" due to the ongoing conflict and restricted aid, leading to a devastating rise in hunger-related deaths, especially among children. Oil prices are at $69/barrel.

The yield curve is inverted through the 10-year. The 10-year Treasury is at 4.40, which is up 11bps from last month. The one-year is at 4.09 which is up 12bps from last month. The 30-year fixed rate mortgage is at 6.76% which is up 14bps from last month.

Prepay speeds remain low, although speeds on coupons above 6% remain elevated. The secondary market for servicing rights remains alive but cautious in its pricing.

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