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Rising US yields pressure the housing market and risk sentiment

MUFG points to the 30-year mortgage rate near a one-year high at 6.75% after Pending Home Sales fell 2.3% month over month in July.

Reported · Written up by our desk · Major Pairs

MUFG currency strategist Derek Halpenny said elevated US Treasury yields and higher mortgage rates are starting to weigh on the US housing market, with recent data showing cooling demand. In particular, Housing Starts and Pending Home Sales have softened.

Halpenny tied the move in rates to the July FOMC meeting and Chair Warsh’s communication, which he said has lifted real long-term yields. He added that FX reaction from the upcoming FOMC Minutes may be limited unless broader volatility develops.

In the housing data, pending home sales for July declined 2.3% month over month, after a 4.8% drop in June, reflecting affordability pressure. The strategist also highlighted that the 30-year mortgage rate is close to a one-year high, near 6.75%, and argued it has room to rise before retesting the 2023 peak of over 8%.

Halpenny said the rise in real long-term yields appears driven by term premium and increased uncertainty about monetary policy stemming from unclear communication from Chair Warsh. FXStreet summarized these views, noting that if Treasury yields remain at multi-decade highs, households could feel the impact quickly.

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