Why Did the Fed Cut Rates, But Mortgage Rates Went Up?
The Federal Reserve cut rates recently, but mortgage rates still went up. Why? The answer lies in the bond market.
The Bond Market and Mortgage Rates
The bond market is where government debt, like Treasury bonds, is bought and sold. The 10-year Treasury bond, in particular, impacts mortgage rates. When the bond’s interest rate (or yield) rises, mortgage rates follow. The bond market reacts quickly to economic data, while the Fed moves more slowly.
The 10-Year Treasury Bond
The 10-year Treasury bond is a loan to the U.S. government that pays interest. When people expect the economy to slow down, they buy more bonds, which lowers yields. When the economy looks strong, yields rise, and so do mortgage rates.
Why Did Mortgage Rates Go Up?
Even though the Fed cut rates, the bond market had already lowered yields in anticipation of this. But recent positive housing data pushed rates higher again. Simply put, good economic news tends to drive mortgage rates up.
What Higher Rates Mean
Rising rates signal economic strength. For example, when new housing construction exceeded expectations, rates went up. A strong economy makes bonds less attractive, so lenders raise mortgage rates to compete.
How Jobless Claims Affect Rates
Jobless claims reflect the strength of the job market. Fewer people filing for unemployment means a strong labor market, which pushes rates up. Recent job data beat expectations, raising both bond yields and mortgage rates.
What to Watch For Next
To see mortgage rates drop, three things need to happen:
- Better mortgage spreads – Mortgage lenders need to offer better rates relative to Treasury bonds.
- Weaker economic and job data – If the economy starts to slow down, bond yields (and mortgage rates) may fall.
- The Fed showing more willingness to help the economy – The Fed needs to signal that they’re willing to take more action to support the economy and avoid a recession.
Take Action Now
Navigating mortgage rates requires understanding these complex relationships. If you’re planning to buy a home or refinance, it’s crucial to stay informed about economic trends. Ready to lock in a rate or need more insights? My team and I are here to provide expert guidance and help you make the best decision based on current market conditions. Contact me today to take advantage of expert advice and timely opportunities in the housing market!
Chenine Lozano, Real Estate Finance Expert
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