INTIMATE RELATIONSHIPS

"Be courteous to all, but intimate with few, and let those few be well tried before you give them your confidence." - George Washington

Inflation, interest rates, bond prices…they all have an intimate relationship. Mortgage rates have historically followed behind inflation. When interest rates rise, newly issued bonds offer higher yields, making existing lower-yielding bonds less attractive, which decreases their prices.

U.S. 10-year Treasury yields have now risen ~50 basis points (bps) in just the last month, outstripping the peaks we saw back in October and reaching their highest levels since 2007. This is not good news for current mortgage rates that are closely tied to the 10-year.

Positive economic growth expectations could be partially to blame for this as the world embraces AI progression, there’s a renewed focus on revitalizing infrastructure, and bolstering supply chains are back. Interest rates change over time and to account for that variability; bond investors tend to require more compensation for locking up their money for a longer time demanding a higher yield for bonds that mature in 10 years than for those maturing in 2 years. Real estate home buyers can buy now and refinance if rates go down not locking them into anything if rates shift downward in their favor.

Once again we see real estate rising as the cream of the crop for where investors and primary homeowners alike want to park their money.