Why are US mortgage rates rising today? Iran conflict impact explained

The escalating war with Iran has raised U.S. government borrowing costs to an all-time high since October 2024.

The driving factor behind this is that investors flee to treasuries amid renewed inflation concerns triggered by surging energy prices.

The two-year Treasury yield has risen half a percentage point this month to 3.9 percent, while the 10-year benchmark yield has gained 0.44 percentage points to 4.38 percent, according to data from the Financial Times. Both increases mark the biggest monthly jump in 18 months.

The bond market frenzy indicates increasing investor anxiety that the Middle East conflict can further mount inflationary pressures, potentially forcing the Federal Reserve to halt or even reverse its rate-cutting plans.

A further dramatic shift is also expected from earlier forecasts of two to three cuts, with traders pushing expectations for the next quarter-point rate cut to December 2027, with a 30 percent probability of a rate hike this year.

The upheaval already has a drastic effect on the broader economy. Thirty-year mortgage rates have risen to their peak this year (at 6.48%).

A sale of two-year treasuries worth 69 billion US dollars on Tuesday received low demand, with primary dealers being forced to take the highest amount of unsold debt since October 2022.

Although the majority of Fed officials predict a rate cut of a quarter point this year, Fed Chairman Jay Powell admitted that rate hikes were discussed at the last policy meeting, which reflects the level of uncertainty surrounding the economic outlook.