Rising Bond Yields Keep Mortgage Rates Elevated as Treasury Yields Hit Multi-Decade Highs

A global selloff in government debt pushed the 30-year U.S. Treasury yield above 5.31% on August 17, its highest since 2007, while the 10-year note settled near 4.72%, according to CNBC. The average 30-year fixed mortgage rate sits at 6.67% as of mid-August, barely changed from a year earlier, per Freddie Mac.
Three structural forces are driving the yield increase: record federal debt issuance, with July's $432 billion deficit the largest monthly shortfall since March 2021; a wave of corporate bond issuance diverting capital from Treasuries, much of it funding AI infrastructure; and elevated inflation pressure from crude oil above $85 a barrel and unresolved tensions over the Strait of Hormuz. Barclays' Anshul Pradhan noted that recent soft economic data has failed to bring yields down. The selloff extends globally, with Japan's 10-year yield hitting a 30-year high and Germany's 30-year yield reaching its highest level since 2011.
The spread between mortgage rates and the 10-year Treasury sits at 2.01 percentage points, wider than the historical average of 1.7 points, adding an estimated $65 a month to a $400,000 mortgage. Housing data reflected the strain: total housing starts fell 12.4% in July to a seasonally adjusted 1.239 million units, while pending home sales fell 2.3%, the second straight monthly decline, according to the National Association of Realtors. Forecasters, including the National Association of Home Builders, expect rates to stay above 6% through 2026 and most of 2027, with rates not consistently falling below 6% until late 2027.