Capital Market Snapshot: Yields Edge Up as Mortgage Rates Slide

Wednesday’s capital market update paints a nuanced picture—while mortgage rates are easing, Treasury yields are nudging upward, reflecting a balancing act between demand for housing relief and caution in fixed income.
Borrowers received a welcome reprieve as the average rate on 30-year mortgages dipped to approximately 6.67%, marking the largest weekly drop in months. Refinancing activity surged, climbing more than 20%, though new purchase applications showed only modest growth, underscoring lingering barriers posed by high home prices and lingering rate pressures.
On the Treasury front, two-year notes slipped slightly to around 3.73%, mirroring growing confidence in an upcoming Fed rate cut—expected in September. Meanwhile, the 10-year Treasury yield held relatively steady, hovering near 4.3%, pushed higher by ongoing supply pressures and inflation concerns. Short-term strategists predict the yield curve will continue to steepen, with the spread between two- and 10-year notes widening in response to Fed easing and persistent long-term inflation risk.
In the backdrop, bond investors are embracing the softer inflation narrative, steering capital toward long-duration instruments: core bond funds and Treasuries have seen inflows as markets price in easier policy. Yet, some caution that if inflation remains sticky or debt issuance accelerates, long-term yields could resume their upward trajectory—even as short-term rates fall.
Taken together, the capital markets are signaling cautious optimism. Lower mortgage costs are providing some breathing space for households, while yield trends suggest markets are positioning for monetary loosening—not without an eye on broader fiscal and inflation dynamics ahead.