Summary
The conflict involving the U.S., Israel, and Iran is causing borrowing costs in the U.S. to rise. This is leading to higher long-term interest rates, impacting housing and government fiscal plans, and causing uncertainty in financial markets.
Key Facts
- The 10-year Treasury note yield rose to 4.45% after the U.S. and Israel's actions in Iran.
- Three recent government debt auctions showed weak demand, resulting in higher borrowing costs.
- The average 30-year fixed mortgage rate increased from 5.99% to 6.62% since the conflict started.
- Investors expect slightly higher inflation, but the primary cause of rising yields is the term premium.
- The war and expected government borrowing are increasing volatility in Treasury markets.
- Investors are concerned about rising inflation, U.S. fiscal challenges, and war-related uncertainties.
- Futures indicate a 40% chance that the Federal Reserve may raise interest rates by the end of the year due to ongoing inflation.
