Comment by darth_avocado
17 hours ago
You have to look at the current context. Bond yields have been spiking, mostly because of the inflation expectations from oil prices and tariffs (mostly oil prices). Mortgages mostly track 10 year yields, which is why when fed dropped the rates back to back, the mortgage rates didn’t come down. The current hike (and the next one) is supposed to create a deflationary pressure, but also provide confidence to the market that the fed will step in to cool inflation if necessary. This in turn lowers the yield on 10 year treasuries and therefore mortgage rates.
The fed rate provides a floor for mortgage rates, but the 10 year yield and mortgage demand decide the ceiling. Currently the demand is pretty low, and therefore the yield mostly controls the mortgage rates.
what I'm saying is that Fed hikes interest rates → bonds sell off → yields rise → mortgage rates rise.
This is logical and empirically observed.
But you are right on the longer term effect. Zooming out: Fed hikes → inflation cools → inflation expectations fall → yields fall → mortgage rates fall.
But the latter is not guaranteed, and it takes time.
I'm unsure to understand how the ceiling and floor mechanisms work. But will dig into that. Thanks.
> Fed hikes interest rates → bonds sell off → yields rise
This part isn’t true. It can happen, but not always, especially right now.
So far you are right, yields are falling since yesterday.