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Bond Yields Plunge. What It Means For Fixed Mortgage Rates

Bond yields dove over 30 basis points on Friday as economic worries start to replace inflation concerns.

Bond yields, which lead fixed mortgage rates, fell to 2.84% on Friday, down from 3.15% on Thursday and well off the 3.59% high reached in mid-June.

The decline comes due to growing expectations of an economic downturn.

Rate analyst Rob McLister, editor of, said most bond traders think inflation is nearing its peak and that “the recession risk is real.”

June inflation data released this week showed a headline reading of 8.1%—its highest level since 1983—though still slightly less than what markets had expected. Core inflation, on the other hand, rose to 5%, up from 4.73% in May.

What it means for fixed mortgage rates

“The thinking is that central banks will soon have broken the economy,” McLister told CMT. “That implies lower growth, lower inflation, and ultimately lower mortgage rates.”

Ron Butler of Butler Mortgage told CMT that monoline lenders, in particular, can “absolutely offer lower rates” on high-ratio and insurable mortgages, and so he expects fixed rates to continue to drop.

According to data tracked by McLister, average deep-discount 5-year fixed mortgage rates offered by national lenders have so far dropped by about 10 bps since the 5-year bond yield retreated from its recent high.

“Other things equal, a 5-year yield that stays below 3% guarantees that big-bank uninsured 5-year fixed rates will land back in the 4s,” McLister said.

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