US Financing Costs Soar as Tariffs and War Push Yields Above 5%

Ambitious plans to lower US financing costs have fallen short of expectations. According to Scott Bessent, former Trump advisor, the administration's strategy was to focus on the 10-year Treasury yield. This would have brought down borrowing costs for Americans. However, between tariffs and war, long-end yields have risen uncomfortably close to post-GFC highs north of 5%, reaching 6.81% in mortgage rates for the first time in a year.

The Iran ceasefire collapse and Israel's attack on Ali Khamenei contributed significantly to this increase, with mortgage rates rising by over 70 basis points since February 28th. The Mortgage Bankers Association (MBA) purchase app index has reached its lowest point since Khamenei's death, reflecting the weakened demand due to higher mortgage rates.

MBA SVP Mike Fratantoni alluded to Kevin Warsh's bungled press conference, which some attribute to the steepener unleashed in July. This led to an increase in longer-term rates and a decline in application volume for both refinance and purchase loans, now running behind last year's pace.