Mortgage Rates Hit 7.4%, Highest Since November 2023, as Pimco Warns 10-Year Yield Could Reach 6%

Since the Federal Reserve raised rates by a quarter point in September, the long end of the bond market has kept sliding, and the cost is now showing up in home loans. Freddie Mac reported Thursday, Oct. 8, that the average 30-year mortgage rate rose 12 basis points to 7.4%, up from 7.28% a week earlier.

That is the highest since mid-November 2023, when the average was 7.44%. It is the seventh straight weekly increase. The rate has also sat above 7% for three consecutive weeks, the first such stretch since April and May of 2024.

The week before the U.S. and Israel attacked Iran, the average 30-year rate was 142 basis points lower than this week's figure. The 10-year Treasury yield, which mortgage pricing tracks, climbed 130 basis points from the day before the war began to Wednesday's close.

A Treasury auction at the highest yield in decades

The Treasury sold $39 billion of 10-year bonds on Oct. 7 at a high yield of 5.3%. The benchmark had traded at 5.35% before the sale, then slipped below 5.3% once results came in.

Demand was solid, and it was mostly foreign. Sovereign wealth funds, central banks and international banks took more than 80% of the auction, well above the 10-year average of about 72%.

U.S. buyers were thinner. Direct bidders took a little more than 17%, under the decade average of 18.3%. Primary dealers bought fewer than 3%, against an average of 9%.

A day earlier, the Treasury sold $58 billion of three-year notes. The 3-year yield closed at 4.932%.

The Treasury also scheduled a $22 billion 30-year auction and a buyback of at least $4 billion in 20-to-30-year bonds for Oct. 8. The department has at least doubled its original $2 billion buyback schedule in an effort to pressure long-dated yields.

Pimco puts 6% on the table

Pimco, which manages about $2.33 trillion, said in its 6-to-12-month outlook on Oct. 6 that the 10-year yield sits near 5.25% and the 30-year near 5.65%. Long Treasuries are close to their highest levels since 2002, the firm said. Pimco ties the selloff, which began in mid-August, to solid U.S. growth, heavy AI-related infrastructure spending and higher energy costs.

On Oct. 9, Pimco Chief Investment Officer Dan Ivascyn went further. He said the 10-year yield faces the risk of reaching 6%, a level not seen since 2000, citing inflation, high oil prices and public debt.

Pimco's outlook names the U.S. and France as having the more challenging debt paths. It flags the UK, Italy and Japan as vulnerable, while still judging all three sustainable under current fiscal plans. The firm's recommendation is to spread bond exposure across developed and emerging markets to blunt country-specific fiscal risk.

Pimco also said persistent energy-driven inflation keeps open the possibility of another Fed hike this year. Traders had priced back-to-back hikes through the October meeting. They have since pushed the next one out to December after strong economic data last week.

Trump blames the Fed, points to oil

President Trump promised during the 2024 campaign that mortgage rates would fall to 3% in his second term. In September 2024, when the average 30-year rate was 6.35%, he told the Economic Club of New York that "young people will be able to buy a home again and be a part of the American Dream."

The rate is now more than a full point above that level.

Trump has repeatedly blamed the Fed as rates rose through spring, summer and early fall. On Wednesday he said the central bank "would like to see the country do badly," while calling Fed Chair Kevin Warsh "great." The Fed under Warsh is the body that raised rates in September.

Later Wednesday, Trump conceded the effect on housing. "It hurts housing, but the rates are going to come down when the oil comes down," he told reporters at the White House. "The oil comes down as soon as we finish off with Iran, and that's going to be very quickly."

Brent crude was above $103 a barrel Thursday afternoon. The Fed's September move and Trump's oil argument point to different causes for the same bond selloff, and the sequence of the past month does not settle which matters more. Pimco's outlook cites both energy costs and fiscal concerns.

What comes next

Traders now expect the next Fed hike in December rather than this month. The 30-year auction and buyback results from Thursday, and whether Brent holds above $100, will show how much demand remains for long-dated U.S. debt. Pimco's 6% warning puts a number on the downside if the answer is not much.