Bond Sell-Off Sends Household Borrowing Costs Soaring to 6.75% Mortgage Rate
The recent sell-off in U.S. bonds has led to a widening of the yield curve, pushing up borrowing costs for households. The 10-year Treasury yield has risen above 4.7%, causing the average 30-year mortgage rate to hit 6.75%. This is a significant increase from previous levels, and it's having a ripple effect on other types of consumer debt.
The sell-off in bonds is being driven by a combination of factors, including rising long-term Treasury yields and war-driven energy prices. The Iran war has disrupted global oil supplies, leading to higher diesel prices and increased costs for households. Additionally, the demand for AI infrastructure, such as data centers, is driving up borrowing needs and competition for capital.
Despite the Fed keeping its policy rate unchanged, the rising long-term yields are tightening financial conditions for U.S. households. The widening of the yield curve has also fueled market unease, with investors awaiting signals from Kevin Warsh at Jackson Hole on August 28. Warsh has expressed concern that Main Street is facing restrictive financial conditions even as Wall Street remains relatively loose.