Mortgage rates fell last week to their lowest point of 2025, offering some relief for potential homebuyers who have been dealing with high rates for years.
However, the cause behind the lower rates is not necessarily good news for consumers.
Why Are Mortgage Rates Dropping?
The drop in mortgage rates is tied to a decrease in yields for 10-year U.S. Treasury bonds. Yields on these bonds fell by around 70 basis points, from 4.9% in January to 4.2% at the end of last week.
Since Treasury yields are closely linked to market expectations for Federal Reserve interest rate cuts, the decline signals potential changes in the economic outlook.
The drop in yields is partly attributed to optimism about the U.S. fiscal situation under the Trump administration, but it has also been driven by investors moving away from stocks and opting for safer investments like bonds.
Trump Shifts Focus from Stocks to Bonds
As the stock market falters, with the S&P 500 falling 6% in the past two weeks, Trump and his advisors are now focusing on the bond market.
While yields for 10-year Treasury bonds dropped from 4.5% to 4.2%, Trump has been vocal about his desire for lower borrowing costs.
During his address to Congress, he emphasised the importance of reducing mortgage rates, calling the decline in interest rates a “big beautiful drop.”
Despite this, the yield for 10-year Treasuries increased slightly during Tuesday’s trading.
Treasury Secretary Scott Bessent also highlighted that mortgage rates had decreased significantly since Election Day, though they remain higher than in September, when rates hit a two-year low of 6.1%.
