US mortgage rates hit yearly high as hot data, hawkish Fed spur Treasury yields

US mortgage rates surged to a new yearly high of 7.26% on Wednesday, propelled by a combination of strong economic data and a more hawkish stance from the Federal Reserve. The 10-year Treasury yield also climbed significantly, reaching 5.13%, a level not observed since 2006.

S&P Global reported that US business activity growth accelerated for the fourth consecutive month in September, reaching its fastest rate in over five years. This surge was driven by both the service sector and a renewed improvement in manufacturing output. This robust economic performance occurred as the Federal Reserve signaled a potentially more aggressive approach to monetary policy.

Federal Reserve Governor Michael Barr, a voting member of the Federal Open Market Committee, stated that further policy adjustments are likely necessary to ensure inflation returns to the 2% target in a timely manner. He noted that inflation remains above target and that risks to achieving the target have increased, while risks to the labor market have receded.

The market reacted to these developments, with the 10-year Treasury yield experiencing a sharp increase. While oil prices also rose, they remained below their yearly highs and were not the primary driver of the yield surge. The author noted that the move in the 10-year yield from 4.96% to 5.13% is significant, and that mortgage spreads, while improving, prevented rates from climbing even higher.