Despite another small rise in the past week, mortgage rates have been fluctuating around the 7% mark and remain just a couple of basis points higher than they were a year ago. The latest economic data suggest private sector activity is moderating and households are saving a larger share of their income. That’s encouraging news on the inflation front.
However, rising concerns over the national fiscal deficit and the sustainability of US debt could cause investors to demand a higher premium to own the longer-dated Treasuries. As the Treasury sells more longer-dated Treasury bonds to fund the deficit, an increased supply – without a similar increase in demand – could put upward pressure on yields, along with the mortgage rates that follow them.
This week’s release of the latest employment data will likely cause investors to adjust their inflation forecasts. Wage growth is expected to have moderated further over the past month. But if wage growth comes in higher than anticipated, there’s a good chance rates will move higher.