On the same day, the Mortgage Banker Association (MBA) released data indicating that the average contract interest rate for 30-year fixed-rate mortgages had experienced a continuous upward trend for six weeks, reaching 7.70% by the week ending on Oct. 13.

This rate had not been seen at such heights since November 2000. Furthermore, five-year adjustable mortgage rates exhibited a significant surge, climbing by 19 basis points to 6.52%, marking the second-highest level in MBA records dating back to 2011. The demand for mortgage loan applications saw a substantial decline, experiencing a 6.9% drop on a weekly basis, reaching its lowest point in 28 years.

Inflation, Fed Hawkishness Created A Perfect Storm On Treasuries

The surge in Treasury yields has had a magnetic effect on a range of interest rates within the economy. Simultaneously, the value of bonds with longer maturities has taken a significant hit in recent years due to the increase in both inflation and interest rates.

Using the widely followed iShares Treasury Bond ETF (NASDAQ:TLT) as a proxy, its value has contracted by over 50% since the highs of 2020 and by more than 18% year to date.

Matthew Graham, the chief operating officer of Mortgage News Daily, highlighted that inflation and economic growth have been major drivers of the rapid increase in interest rates over recent years.

Graham thinks the Federal Reserve is unlikely to indicate an end to its higher-for-longer rate policies until it observes lower inflation combined with a cooling economy.

The mortgage rate expert believes that controlling inflation will be a formidable challenge for the Federal Reserve if the economy continues to show such a strong resilience.