What is happening in the bond market right now?

The bond market is taking a beating, as the average rate on a 30-year US mortgage has climbed to 7.45%, up 150 basis points in six months and its highest level since 2023, when inflation was above 6.4%.

The 10-year Treasury yield gained about 30 basis points in two days, including its biggest one-day jump since April 9, 2025, the session tied to “Liberation Day.”

The 10-year rate surged to 5.18% during Thursday’s session, reaching rates that had not been seen since 2007, before the global financial crisis and subsequent recession dragged yields down towards zero.

That benchmark fell below 0.50% in 2020 during the COVID shock. It stood at only 3.97% before the United States and Israel attacked Iran, but the climb sped up after the conflict pushed oil prices higher and brought inflation fears roaring back.

Inflation pushes traders to price a much tougher Federal Reserve

Energy is contributing to the problem as well, with Brent crude going back over $105 per barrel, and diesel reaching all-time highs. This is a very bad time, because world diesel consumption is entering the season where demand grows by 2 million barrels per day.

Truck drivers now pay twice as much for gasoline compared to nine months ago. At the same time, US consumers now expect annual inflation of 4.6%. That is the third-highest in a year. In light of rising fuel prices, an inflation rate of 4% looks quite reasonable.

The other big change occurred in the Federal Reserve. For months, markets avoided any expectation of new rate increases due to appointment of new chairperson of the Federal Reserve Kevin Warsh, which was made by Donald Trump who wanted lower interest rates. However, eight days ago this reasoning has taken a blow.

Interest rates have increased by 25 basis points, and all the policymakers voted for it. This is the first unanimous vote in over a year since May 2025, after several months of debates and voting for rate cuts. The central bank said, “The Committee will deliver price stability.”

Kevin kept the Fed’s 2% inflation target at the center of policy. Traders are now pricing about 100 basis points of additional hikes by next summer. Yields have moved sharply higher across maturities, while the bond market is trading as if officials should have gone with a 50-basis-point increase last week instead of 25.

An attempted move by the US Treasury to calm the market barely changed the direction of yields. Selling continued. The market barely paused before yields resumed climbing across maturities.

Higher Treasury yields hit mortgages, stocks, gold and crypto at once

Housing is already taking the blow. Long-term US mortgage rates have crossed 7% for the first time since early 2025, while the latest average has reached 7.45%. That makes monthly payments even harder for buyers already facing expensive homes.

Stocks are under pressure too. The US market had moved close to a record earlier this week, but the jump in Treasury yields slowed that rally. Higher government yields also put pressure on gold and cryptocurrencies because investors can earn more from Treasurys without taking the same level of market risk.

For crypto traders, that competition matters. Bitcoin and other digital assets pay no fixed yield. A 10-year Treasury near 5.18% gives investors a much larger return than it did when yields sat near zero, changing how capital gets divided between safer debt and volatile assets.

There is also a supply problem inside the bond market. Washington must sell huge amounts of debt to finance the US deficit. More issuance means more Treasurys competing for buyers. When demand fails to absorb that supply at existing prices, bond prices fall and yields rise.

The outlook is that there will be 3% to 4%, or more, inflation up until mid-2027. As Cryptopolitan has documented, over the past decade, the buying power of the US dollar has declined by about 40%. The continued deficits and inflation will only worsen this position while the bond market requires increased returns on their investments.

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