Rates Hit 2 Year Highs As Bond Yields Rise

Happy Friday from Local Mortgage!

Despite a lack of major economic news, it was a rough week for mortgage markets. The upward trend seen in recent months continued, and mortgage rates climbed to their highest levels in over two years.

Long-term bond yields, including the yields that influence U.S. mortgage rates, have been moving higher around the world for several reasons. First, inflation remains elevated in many countries, and higher oil prices since the start of the conflict in the Middle East have added inflationary pressure. When investors expect inflation to remain higher, they typically want a larger return on their investments to protect their purchasing power. Second, investors are keeping a close eye on government spending. Governments around the world are running large deficits and need to issue more debt to fund them. With more bonds competing for money from investors, yields generally need to rise to attract buyers. Another factor is the huge amount of money being invested in artificial intelligence. Technology companies are spending heavily on building AI infrastructure, increasing their need for capital. That means they are also willing to offer higher returns on corporate bonds to attract investors. Put it all together, there's a lot of demand for investor capital at the same time that the supply of bonds is increasing, pushing mortgage rates higher.

In housing news, sales of previously owned homes in August slipped 2% from July to the lowest level since June 2025. In another report, a survey of home builder sentiment on housing market conditions from the NAHB unexpectedly dropped to 32, the lowest level in a year, and has remained in negative territory below 50 for twenty-nine straight months.

Looking ahead, attention will remain fixed on the conflict in the Middle East and oil prices. Investors also will monitor comments from Fed officials about future monetary policy. For economic reports, Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Wednesday. The ISM national manufacturing sector index will come out on Thursday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.

Hope everyone has a great weekend, thank you for reading!