Why the Bond Market’s Struggles Are Driving Up Mortgage Rates

However, these factors do not influence our editors' opinions or ratings, which are based on independent research and analysis. Our partners cannot pay us to guarantee favorable reviews. Here is a list of our partners. Inflation, an AI borrowing boom and rising government debt are pushing bond yields to their highest levels in 20 years — and mortgage rates are climbing right along with them. Published Sep 25, 2026Fact CheckedHow is this page expert verified?NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.More on our editorial rigorAddas a preferred source on Google NerdWallet is committed to editorial integrity.Helpful ResourcesMortgage Interest Rates ForecastMortgage Rate TrackerHow to Get the Best Mortgage RateHow Much House Can I Afford?Indulge me for a moment in memories of 2007. It was a time when gaucho pants were inexplicably cool, Apple was about to release a brand new iPhone and, yes, the yield on the 10-year Treasury note topped 5%. It feels like forever ago, except wait — those things are all true now, too.Mortgage interest rates are generally benchmarked to the yield on the 10-year Treasury note, and this week that yield hit its highest level since 2007. Rising treasury yields have been pushing mortgage rates higher for a while, and now, as the 10YT has reached a nearly 20-year high, we're also seeing mortgage rates rise above 7%.Let's break down some of the key factors contributing to higher bond yields — and higher mortgage rates. Understanding what's happening with bonds makes it clearer why rates are likely to maintain their upward momentum.InflationInflation has been running hot for several years now, and the Iran war has only made it worse. In August, the Consumer Price Index rose 3.4% year over year; the Federal Reserve's target for inflation is 2%. Sidenote: The main way the Fed fights inflation is by raising the federal funds rate, which is the short-term borrowing rate the central bankers set. A rate-hiking Fed usually means higher mortgage rates, too.But we're here to talk about bond yields, and why inflation has such a big effect on the bond market. In a nutshell, when money's worth less, bonds are worth less, too. To understand why, we need to talk about how bonds work.Bonds are essentially tiny loans that investors give to bond issuers. (When you buy a Treasury bond, you're lending money to the U.S. government.) Over the life of the bond, the investor receives regular interest payments, and then when the bond matures, they get their initial investment back.But bonds aren't always purchased directly or held until maturity. When investors buy bonds from each other, they're buying the bond at today's price, not its issue price.Here's the thing. Regardless of what an investor paid for the bond, the issuer is still going to make the same interest payments. The ratio of a bond's annual interest payment to its current price is what gives us the yield. When bond prices go down, yields go up — the interest payment is being divided by a smaller number.In an inflationary environment, demand can drop because bonds are less desirable. (If you've seen headlines referencing the bond market selloff, that's what's happening there.) Bond investors who stick it out certainly aren't going to pay face value for existing bonds, and they'll want higher yields on newly issued bonds. All told, inflation pushes up bond yields — and that dynamic's been pushing up mortgage rates, too.Nerdy PerspectiveWhy are mortgage rates pegged to the 10-year Treasury when most home loans aren't 10 years? What's your property type?Select your optionSingle family homeCondoTownhouseHow do you plan to use this property?Select your optionPrimary residenceSecondary homeInvestment propertyGET STARTEDWon't affect your credit scoreWill rates drop?There's more going on with the bond market than what I've just described, but the key takeaway is that we are likely in a higher for longer rate environment. It would take a significant shift to alter the trajectories of inflation, AI growth or the national debt.Additionally, the Federal Reserve has signaled that at least one additional rate hike is likely before year's end. Fighting inflation is the main purpose of raising the funds rate, so in the long term the Fed's actions could ease bond yields and mortgage rates. In the short term, however, mortgage lenders tend to price in the Fed's expected decisions ahead of time — so if a hike starts to look more likely at the October or December meetings (or both), that could put additional upward pressure on mortgage rates.If you're a homeowner who was hoping to refinance, you may be in for a long wait. At today's rates, extremely few homeowners would be able to see savings with a rate-and-term refinance.If you're considering buying, budget for what you can afford at today's rates. Yes, it would be great if rates dropped and you could refinance in the near future, but no one can guarantee where mortgage rates are going next. Pushing your budget to the limit thinking you won't have to put up with it for long could easily backfire. In other words, when it comes to mortgage rates, you can hope for the best, but don't attempt to plan for the best.Explore more onMortgage NewsHow to Move in 2026MortgagesAddas a preferred source on Google NerdWallet Compare, Inc. NMLS ID# 1617539NMLS Consumer Access |Licenses and Disclosures California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812 Insurance Services offered through NerdWallet Insurance Services, Inc. (CA resident license no.OK92033) Insurance Licenses California: California Finance Lender loans arranged pursuant to the Department of Financial Protection and Innovation Finance Lenders License #603L288 You also can open a Cash Account offered by Atomic Brokerage which allows you to earn interest on your cash through a cash sweep program. View Important Cash Account Disclosures. Neither Atomic Invest nor Atomic Brokerage, nor any of their affiliates is a bank. Investments in securities: Not FDIC Insured, Not Bank Guaranteed, May Lose Value. Investing involves risk, including the possible loss of principal. Before investing, consider your investment objectives and the fees and expenses charged. NerdWallet™ | 4150 N Drinkwater Blvd, Suite 200, Scottsdale, AZ 85251

---

Source: NerdWallet

This article has been carefully curated and reformatted for educational and informational purposes. Full credit goes to the original publisher.

---

📚 Visit more helpful articles on Joab Peters Blog