As Treasury yields continue their ascent, reaching levels not seen since November 2023, the impact on the U.S. mortgage market and broader economy is becoming increasingly concerning.
The yield on the 30-year Treasury note has climbed to 4.78%, marking its highest level since November 6, 2023, and the yield on the 10-year benchmark bond has also crept higher to 4.65%. This surge in yields has negatively impacted bond-related ETFs, with the iShares 20+ Year Treasury Bond ETF (TLT) experiencing a decline of nearly 10% year-to-date.
The rising yields have had a direct impact on the mortgage market, where rates have reached their highest levels since late 2023. The 30-year fixed mortgage rate has increased to 7.24%, marking the third consecutive weekly rise and leading to a 2.7% decrease in loan applications as homebuyers delay their purchase decisions due to affordability concerns and low supply.
The growing federal deficit has also raised concerns among investors and analysts. Veteran investor Ed Yardeni expressed worries about the potential for the increasing deficit to destabilize the market, highlighting the upward trend in net interest paid by the US federal government as alarming. He suggests a cautious approach to the bond and stock markets if investors decide to limit their support for the rising federal debt.
From a technical perspective, the monthly chart for 30-year Treasury yields exhibits an ascending channel, indicating the possibility of further yield increases. Key resistances to watch include 5% and higher, raising the potential for negative returns in bonds.
The surge in Treasury yields has significant implications for the economy, as it increases borrowing costs for both consumers and businesses. The rise in mortgage rates could cool the housing market, while higher rates for businesses could slow down investment and hiring. The impact on the broader economy will depend on the extent and duration of the yield increases and the response of the Federal Reserve.
