Mortgage rates are closely tied to bond markets, particularly the 10-year Treasury yield. Here’s why: bonds and mortgages are both long-term investments, meaning they share many risk and reward considerations. When bond yields rise, mortgage rates generally follow suit because lenders need to keep rates competitive to attract investors. Conversely, when bond yields fall, mortgage rates tend to drop, making home loans more affordable.
With Donald Trump’s recent victory in the 2024 election, we saw an immediate reaction in bond markets. Overnight, bonds sold off as investors recalibrated their expectations for the economy under Trump’s administration. Traders quickly settled into a trading range, keeping the 10-year yield around 4.45% with little volatility during U.S. market hours. This calm, however, might be temporary, given the upcoming Fed announcement this Thursday—a day later than usual, likely to accommodate the election.
Despite the focus on Trump’s win, markets are already factoring in a 0.25% rate cut from the Federal Reserve. Though the Fed will probably recognize recent economic improvements, including shifts in Nonfarm Payroll (NFP) data, they’re also likely to emphasize a cautious approach, signaling that they’re looking at the broader picture beyond a single month’s data.
For potential homebuyers, this bond-driven stability suggests that mortgage rates may remain relatively steady in the short term, even with the Fed’s expected rate cut. However, as economic policy takes shape under the new administration, we could see shifts that impact both bond yields and mortgage rates. For now, market players are closely watching the interplay between election outcomes, bond performance, and Fed guidance for insights into the future trajectory of mortgage rates.
Thanks for reading,
Chris
