Mortgage Rates and Treasury Yields Jump Amid Rising Inflation Concerns

Mortgage Rates and Treasury Yields Jump Amid Rising Inflation Concerns

So much has been written and said about the stock market lately, but the actual economy itself has gone somewhat overlooked. Even with all the information about mortgages available at your finger tips, you still need to pay attention to interest rates, the key metric for determining the health of the economy. 

30-year US mortgage rates, on average, hit 2.99% this past Friday, having hit an all-time low of 2.8% back on February 10th. On Monday it climbed up to 3.04% according to Bankrate, and this has many market experts believing it’s going to stay north of 3% moving forward.  That’s still very low, even if it starts hovering near 4%, it would still be rather low, as far as mortgage rates go historically. 

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However, it’s still the biggest jump in over a year and it comes along as the 10 year Treasury Note has seen its yield rise yet again. It hit 1.35% on Friday, the highest its been since last February, and the 1.5% line is very much in sight now. On a positive trajectory since August, when it was way down at 53 basis points, we’re now seeing an increased level of concern about inflation.

As we wrote back in Mid-October, when the interest rate on the 10-year was about half of what it is right now, we expected Democrats to win big on Election Day, and with that we’d see an increase in treasury yields, sooner rather than later. That’s because history shows that one party control of the legislative and executive branches typically leads to an increase in treasury yields.

Joe Biden decisively defeated Donald Trump to take the Presidency, as had been expected while the Democrats maintained control of the House of Representatives, which they took in the 2018 midterms, and gained just barely enough Senate seats to take control of the upper chamber.

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One party rule provides an easier opportunity to expand the federal budget deficit through spending programs. As deficits rise so do treasury yields due to two reasons. Outstanding bond supply increases, with the federal government needing to raise more money in order to match their level of borrowing.

Also, a boost in short term economic growth is likely as we’re seeing more vaccines get distributed, bringing us closer to eventual herd immunity. That would get us to more re-opening and that could mean expansion, and thus inflation. We should expect to see mortgage rates and the 10 year yield rise as the Biden administration readies a new round of economic stimulus.

We’re set for another round of PPP (Paycheck Protection Program) to help small businesses and get Main St up and running again. It all adds up to rising interest rates, mortgage rates and falling bond prices and inflation creeps closer.

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“From a bond investor’s perspective, inflation is their worst enemy, because it erodes the value of those fixed payments that a bond holder receives over time,” Bankrate analyst Geeg McBride said to Marketwatch. “Bond investors demand higher yields to compensate for that.” 

Paul M. Banks runs The Sports Bank, partnered with News NowBanks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” has regularly appeared in WGNSports Illustrated, Chicago Tribune and SB Nation. Follow him on Twitter and Instagram.

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