Why are US mortgage rates rising again as 10-year Treasury yields hit a 19-year high?

US mortgage rates are rising once more as Treasury yields climb to their highest level since 2007, according to Zillow data. The average 30-year fixed purchase rate is now 7.195%, while the 30-year refinance rate stands at 7.287% and the 15-year mortgage rate is 6.349%. This upward trend is primarily driven by the surge in the 10-year US Treasury yield.

Mortgage rates typically align with the yield on 10-year Treasury notes. When these yields increase, mortgage rates generally follow suit. Mortgage rates are not directly determined by the Federal Reserve's policy rate, but rather by longer-term borrowing costs, especially the 10-year Treasury yield. When Treasury yields rise, mortgage rates usually move higher as well.

The Federal Reserve's forthcoming policy decision is also a factor, with markets anticipating a possible interest rate hike. This expectation has further pushed Treasury yields and mortgage rates upwards.

The ongoing US-Iran war has added to the inflationary pressures, which have kept inflation at 3.4% annually, above the Federal Reserve's target of 2%. The conflict has led to a spike in oil prices, with Brent crude reaching $100 a barrel for the first time since July, heightening concerns about inflation and the Fed's rate hike expectations.

Moreover, the Treasury's recent bond buyback programme, aimed at lowering Treasury yields, fell short of expectations. This smaller-than-anticipated buyback contributed to the upward pressure on Treasury yields and mortgage rates.

The interconnected factors of inflation, oil prices, and the Federal Reserve's rate hike expectations are influencing mortgage rates. Homebuyers will need to monitor these elements closely, as the 10-year Treasury yield remains elevated, potentially causing sustained pressure on mortgage borrowers.