Bond Market Surge Sends Mortgage Rates Soaring Amid Inflation Fears

The Federal Reserve kept interest rates steady in its latest decision, but bond markets have been on a tear. The yield on the 30-year US Treasury bond hit 5.31 percent, the highest level in nearly two decades.

This increase translates to higher mortgage rates: the average 30-year fixed mortgage in the United States is now at 6.75 percent. On a $340,000 loan, roughly the US median, a rate move of that magnitude adds approximately $140 to the monthly payment and more than $50,000 over the life of the debt.

The forces driving this sell-off are multifaceted. Brent crude surged toward $90 a barrel after US-Iran peace talks stalled, reviving inflation fears. Additionally, bond investors have been pricing in the structural concern that the US national debt is closing in on $40 trillion, with interest payments alone running at $1.4 trillion a year.

Kevin Warsh, Federal Reserve chair, has responded to the sell-off by praising the rise in yields. He described the market's move as doing 'monetary work that the central bank does not need to replicate.'