Treasury Yields Continue to Fall as Investors Await Housing Data

Treasury yields have been on a downward trajectory in recent months, with investors eagerly awaiting the release of key housing data. The decline in yields can be attributed to several factors, including inflation data, Fed rate cuts, economic uncertainty, investor demand, and global market dynamics. As mortgage rates tend to follow the direction of the 10-year Treasury yield, the fall in yields has a significant impact on mortgage rates.



Inflation data released in December 2024 showed a slower pace of inflation, reassuring investors that the Fed's rate hikes were working. This led to a decrease in market expectations for future rate hikes, driving down long-term Treasury yields. Additionally, the Federal Reserve began cutting interest rates in September 2024, which typically leads to lower long-term Treasury yields. However, in this case, the Fed's rate cuts did not initially translate to lower mortgage rates due to other factors at play.



The combination of quantitative tightening, greater Treasury issuance, and heightened uncertainty about the economic outlook contributed to the rise in term premiums, which drove up Treasury yields. However, as yields declined, expectations likely played a relatively larger role amid a series of lower-than-expected data prints. Investors' expectations for housing data can influence Treasury yields through inflation expectations, economic growth expectations, and risk appetite. Positive housing data can boost investor confidence, leading to increased demand for riskier assets like stocks and a decrease in demand for safe-haven assets like Treasury bonds. Conversely, negative housing data can decrease investor confidence, leading to increased demand for safe-haven assets and higher yields.



The fall in Treasury yields has a significant impact on mortgage rates, as mortgage rates tend to follow the direction of the 10-year Treasury yield. When the 10-year Treasury yield falls, mortgage rates typically decrease, making mortgage-backed securities more attractive to investors. Conversely, when the 10-year Treasury yield rises, mortgage rates also tend to increase, as investors seek higher returns from other investments.

In conclusion, the recent decline in Treasury yields can be attributed to several factors, including inflation data, Fed rate cuts, economic uncertainty, investor demand, and global market dynamics. As mortgage rates tend to follow the direction of the 10-year Treasury yield, the fall in yields has a significant impact on mortgage rates. Investors' expectations for housing data can influence Treasury yields through inflation expectations, economic growth expectations, and risk appetite. As investors await the release of key housing data, they will continue to monitor the impact of these factors on Treasury yields and mortgage rates.