Summary

• The 30-year Treasury yield rose by 5 basis points on Tuesday, and by 23 basis points over the past seven trading days, to 5.19%, the highest since June 2007.
• There is now a spread of 156 basis points between the 30-year Treasury yield and the Effective Federal Funds Rate (EFFR, 3.63%), which the Fed targets with its policy rates. Before the Fed started cutting rates in 2024, the 30-year yield was below the EFFR.
• The 30-year fixed mortgage rate tracks the 10-year Treasury yield but is higher. The government has been trying to reduce that spread, and therefore, hopefully reduce mortgage rates, by having Fannie Mae and Freddie Mac buying back their own MBS that they issued and guarantee.
• To soothe the bond market, the Fed needs to get hawkish on inflation. It needs to talk about multiple rate hikes for a couple of months, and then it needs to start hiking, and it needs to hike at every meeting, and it needs to fear inflation, not “look through” inflation.

Ugly trifecta that spooks the bond market. To soothe bond yields and mortgage rates, the Fed needs to hike, not “look through” inflation.

The 30-year Treasury yield rose by 5 basis points on Tuesday, and

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