Mortgage rates are at their highest point in nearly three years as turmoil in the bond market continues.
U.S. Treasury bonds continued selling off on Thursday, driving yields on the most closely watched bonds to their highest levels since 2002.
The yield on the 10-year Treasury rose as high as 5.34% in early trading. Over the course of the three months that ended Wednesday, the 10-year yield had its largest quarterly surge since 1994. The 30-year yield spiked to as high as 5.69%.
As bonds sell off, their yields rise.
The surge in the 10-year yield is driving U.S. mortgage rates higher, too. Late Wednesday, the average 30-year fixed mortgage rate rose to 7.6%, the highest it has been since late 2023.
Yields are spiking for a number of reasons, but a major driver is inflation stemming from rising energy prices as a result of the wars in Iran and Ukraine.
On Thursday, the average regular gas price in the U.S. remained 47% higher than it was in late February when the Iran war began. At the same time, diesel prices have soared 70% over the same period of time.
While diesel is not often used by consumers, it is used widely in the shipping and farming sectors, meaning that higher fuel costs can easily trickle down to store shelves.
Last week, S&P Global reported that “price pressures intensified in September” for businesses at the fastest rate in four years.
On Thursday, another report echoed similar concerns. The Institute of Supply Management released its September report on U.S. manufacturing. While it said that the industry remained steady, it also flagged “a notable increase” in costs.
Stocks declined to the lowest levels of the day after that data was released. The S&P 500 and Nasdaq Composite fell 0.3%. The Dow declined 300 points.
President Donald Trump on Wednesday said he was still considering whether he would ban U.S. exports of diesel. However, experts, including some in his own cabinet, have warned that a ban would only drive up prices.
A recent ban on exports of diesel from Russia has been widely cited by commodities experts as a major contributor to diesel’s recent all-time highs.
The Trump administration is also urging European allies, such as Germany and France, to release their emergency diesel stockpiles in another attempt to cut prices.
“I spoke with my French counterpart yesterday,” U.S. Trade Representative Jamieson Greer told Bloomberg on Thursday morning. “I let him know that this is an idea we’ve had in the U.S., we would love to have a collaborative response to this.”
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A spokesperson for the European Commission told reporters on Thursday that it would be holding an “important” meeting with the International Energy Agency on Friday about diesel supplies. “We will then take action as necessary,” the spokeswoman said.
On Wednesday, the Federal Reserve’s favorite inflation indicator appeared cooler than expected, however many economists attributed that primarily to a technical change with how the data are calculated.
“Cooler on paper, hot underneath,” is how KPMG chief economist Diane Swonk summarized the number.
The PCE index rose 3.4% on a year-ago basis, less than the expected 3.7% rise. Core PCE, which excludes food and energy, was just 3%, also less than the 3.3% expected by economists who were surveyed by Dow Jones.
“The measuring stick moved. The inflation problem did not,” said Swonk.
Even with a methodological change, so-called “super core” PCE, which excludes energy and housing, rose 0.4% in September. “Sticky is an understatement,” Swonk remarked about that specific figure.
With inflation still running hot, energy prices continuing to trend higher and yields rising, affordability still remains a major problem for consumers.
Another Fed rate hike could also soon be on the horizon.
Currently, market odds show an approximately 60% chance of a hike during the central bank’s early December meeting.
“Affordability concerns extend beyond the government’s inflation measures,” said economists at PNC, which added that “some of its methods may not fully capture the experience of consumers, particularly prospective homebuyers.”
The rise in mortgage rates has put the American Dream further out of reach for millions of hopeful homeowners. The level of homes on the market sitting unsold recently reached its highest level in more than a decade.
“There may be some relief coming on affordability, but in the near term the cost of living will continue to stress households,” the PNC economists added.
