In the lead-up to the President Trump's pivot on tariffs, markets were unraveling: stocks slid sharply, with the S&P 500 on the brink of a bear market. But the real alarm bell? A sharp, unexpected surge in long-term Treasury yields — a move that seemed to force the president’s hand.

At its peak on Wednesday, the 10-year yield hit 4.47%, jumping a staggering 60 basis points from Monday’s low of 3.87%. It was the biggest three-day spike since December 2001—and it sent shockwaves through the market.

If you're buying or selling a home, you might be wondering: What do bonds have to do with mortgage rates and why do mortgage rates sometime jump even when the Fed is cutting rates? Here’s what’s really going on.

🧠 Key Takeaways

• Mortgage rates don’t follow the Fed—they follow the 10-year Treasury yield.

• The 10-year yield reflects investor expectations for future short-term rates, inflation, and growth.

• Bond prices and yields move in opposite directions. When bond prices fall, yields rise—and mortgage rates often follow.

• Investors demand a spread above the 10-year yield to compensate for the added risk of mortgage lending.

• The MBS market also influences rates but takes its cues from the broader bond market.

🏦 The Fed Doesn’t Set Mortgage Rates

Many people think mortgage rates move in lockstep with the Federal Reserve’s interest rate decisions. But the Fed only sets the federal funds rate, which is what banks charge each other to borrow money overnight. That’s a short-term rate.

When the Federal Reserve reduced the federal funds rate by 0.5 percentage points back in September, many people expected mortgage rates would also decline. Instead, the average rate on a 30-year mortgage rose from 6.09 percent on September 19, the day after the Fed’s first rate cut, to as high as 6.84 percent on November 21, before dipping slightly again in recent weeks.

This has caused potential homebuyers, mortgage lenders, and other market observers to ask us — why have mortgage rates risen despite the Fed cutting rates?

The short answer is this: The federal funds rate is the interest rate at which banks lend money to one another overnight, meaning it's an interest rate on very short-term lending. Interest rates on other short-term bonds and loans move very closely with changes in the federal funds rate. The 30-year mortgage, on the other hand, is a long-duration loan and thus has a different rate at which market participants are willing to lend. This rate is determined in the bond market.

A 30-year mortgage is a long-term loan, and long-term rates move based on expectations about the future, not just what the Fed does today. That’s where the bond market—and especially the 10-year Treasury—comes in.

 ⚓ Mortgage Rates Are Tied to the 10-Year Treasury

 Think of the 10-year Treasury yield as the anchor and mortgage rates as the boat tied to it. When the anchor rises or falls, the boat follows.

Why? Because the 10-year Treasury is considered one of the safest investments in the world, and it sets the baseline for how much investors demand in return for lending money over a long period of time.

🧾 What Is the 10-Year Treasury?

The 10-year Treasury is a loan to the U.S. government. In return, the government pays interest over 10 years. It’s ultra-safe—and ultra-influential. When investors are feeling cautious, they flock to Treasuries, which pushes prices up and yields down. When they’re feeling confident or worried about inflation, they sell, pushing prices down and yields up.

The recent surge in yields? That was investors signaling serious concerns—about inflation, about debt, and about the long-term outlook for the U.S. economy.