Appetite for bonds wanes as investors pile into the stock market and assess whether Donald Trump’s return to the White House will fuel more government borrowing and reignite inflation.
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Mortgage rates and yields on government bonds climbed sharply Wednesday as investors piled into the stock market and assessed whether Donald Trump’s return to the White House in January will fuel more government borrowing and reignite inflation.
Yields on 10-year Treasury notes jumped 19 basis points Wednesday morning, hitting a high of 4.48 percent. The 10-year yield, a barometer for mortgage rates, had closed at 4.29 percent on election day after a successful auction of $42 billion in notes showed healthy investor demand for government debt.
Rates on 30-year fixed-rate mortgages were up nine basis points Wednesday, to 7.13 percent, according to an index compiled by Mortgage News Daily.
Futures markets tracked by the CME FedWatch tool show investors are still convinced the Federal Reserve will cut short-term rates when policymakers wrap up a two-day meeting on Thursday. But long-term interest rates have been on the rise since the Fed approved its first rate cut in more than four years on Sept. 18.
That’s partly because in cutting rates in September, the Fed laid out a cautious path for future rate cuts. Although the economy has cooled, it continues to grow and some hawkish Fed policymakers have voiced concerns that inflation could surge again.
In addition, “bond vigilantes” have shunned government debt over concerns that Congress and the next president don’t have a plan for tackling the $34.8 trillion national debt.
While analysts had forecast that the national debt would continue to climb under a Trump or Kamala Harris administration, some expect that tax cuts and inflationary tariffs proposed by Trump will fuel more government borrowing at a higher cost.
Tom Essaye
“Correct or not, the market views Republican control of Washington as negative for the debt and deficits,” Tom Essaye, president of Sevens Report Research, said in a note to clients. “As a result, Treasury yields will rise on this news and continue to be elevated until such time as Republicans calm fears of rising debt and deficits.”
Economist Mohamed El-Erian noted that investors also have less of an appetite for bonds because they’re moving money into the stock market on expectations that the economy will take off under Trump. Reduced demand (or increased supply) of bonds pushes prices down and yields up.
Shares in blue chip companies tracked by the S&P 500 index were up 2.4 percent Wednesday, and the tech-heavy NASDAQ Composite gained 2.8 percent.
Mohamed El-Erian
“The equity market is right not to hear the bond vigilantes screaming because higher growth is good for equities,” El-Erian told Bloomberg TV.
“The economy is doing well, employment is doing well — that’s good for equities, too,” El-Erian said. “So it’s only … higher debt, a higher deficit and higher inflation that (investors) should worry about. When I look at markets … they are behaving very rationally.”
Mortgage rates climbing
Mortgage rates had already climbed nearly 80 basis points from a 2024 low of 6.03 percent registered Sept. 17, to 6.79 percent as of Tuesday, according to rate lock data tracked by Optimal Blue.
Applications for purchase mortgages fell by a seasonally adjusted 5 percent last week when compared to the week before, but were up 2 percent from a year ago, according to a survey of lenders by the Mortgage Bankers Association.
Joel Kan
“Ten-year Treasury rates remain volatile and continue to put upward pressure on mortgage rates,” MBA Deputy Chief Economist Joel Kan said in a statement.
With requests to refinance also down 19 percent week over week, overall demand for mortgages decreased for the sixth consecutive week, with purchase loan requests hitting the lowest level since mid-August and refi requests declining to the lowest level since May, Kan said.
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