The average rate for a 30-year fixed purchase mortgage reached 7.195%, up from 7.155% a day earlier, according to Zillow data. US mortgage rates are moving higher again as Treasury yields rise.
The average 30-year refinance rate is 7.287%, while the 15-year mortgage rate is 6.349%. The main reason is the rise in the 10-year US Treasury yield. Mortgage rates generally move with the yield on 10-year Treasury notes. The 10-year yield has climbed to its highest level since 2007, putting fresh upward pressure on home loan rates. Investors expect the Fed to raise short-term borrowing costs for the first time since July 2023.
Because energy is a major cost for consumers and businesses, higher oil prices can increase inflation. Earlier reporting noted: The Federal Reserve is due to announce its interest-rate decision on Wednesday. Because higher interest rates usually put upward pressure on Treasury yields, especially when investors think inflation could remain a problem, the decision matters.
Other mortgage rates are also elevated. Rising energy prices, high government debt and inflation fears are putting pressure on bond markets. Investors are worried about possible disruptions to Middle Eastern oil and gas supplies. If inflation stays high, investors may expect interest rates to remain higher for longer. That can push Treasury yields even higher.
Earlier reporting noted: The move is part of a wider global selloff in government bonds. Earlier reporting noted: A fresh rise in global oil prices helped push Treasury yields higher.
Why 10-year Treasury yields matter
Mortgage rates do not directly follow the Federal Reserve’s policy rate . When Treasury yields rise, mortgage rates usually move higher too. Higher oil prices can mean higher inflation. When energy becomes more expensive, businesses can face higher production and transportation costs. Those costs can eventually show up in prices paid by consumers. News. Markets have sharply increased their expectations for a Fed rate hike. That probability has increased even further. Fed officials were already showing concern about inflation. The central bank kept interest rates unchanged at its July meeting, as widely expected. The rise in oil prices linked to the US-Iran conflict is adding to those inflation fears, while expectations of a Fed rate hike are pushing Treasury yields higher.
Instead, they are closely linked to longer-term borrowing costs, especially the 10-year Treasury yield. The August Consumer Price Index showed inflation running at 3.4% annually, with high energy costs helping keep inflation elevated, according to U.S. The Fed’s inflation target is 2%. With inflation at 3.4%, price growth remains well above the central bank’s target. When the August inflation report was released, the probability of a September rate hike rose to 86%, according to the CME Group FedWatch Tool. The odds of a September rate hike are now at 93%. As long as the 10-year Treasury yield remains elevated, mortgage borrowers could continue to feel the pressure.
Because inflation is still above its target, that is a problem for the Federal Reserve. Because markets are worried about inflation and higher interest rates, the bigger picture is that mortgage rates are rising. The key question for homebuyers is therefore not just what the Fed does tomorrow, but also where Treasury yields, oil prices and inflation go next.
