Why Bond Yields and Mortgage Rates Aren’t Budging
If you’ve heard that the Federal Reserve has been cutting interest rates, you might assume borrowing costs and bond rates should be falling too. However, long-term Treasury yields — and mortgage rates — have actually been rising recently. It feels backwards, but there’s a simple reason: the Fed controls only short-term rates. The free market controls long-term rates.
Since last fall, the Fed has lowered rates by 1.5 percentage points and is expected to cut again. Normally, that would pull long-term yields down. Instead, Treasury yields and mortgage rates have climbed.
Why? Because long-term rates depend on what investors expect, not what the Fed is doing today. And right now, the market is nervous about a few things:
Volatile trade policy. Global supply chains and trade relationships are shifting, increasing uncertainty.
Rising U.S. debt. Investors are demanding more return to compensate for long-term fiscal risk.
Skepticism about future Fed cuts. If inflation still feels too high, the market may disagree with continued easing.
Even though the Fed wants to move toward a more neutral policy, investors want higher yields to reflect the risks they see ahead. That’s why mortgage rates and other long-term borrowing costs aren’t falling — the free market is pricing in its own expectations. There is only so much direct power the Fed has over the rates you see as a consumer.
