On July 17, the 10-year yield closed at 4.55%, while the 2-year note ended at 4.18%. The 30-year Treasury yield stood at 5.06%, and the 30-year TIPS yield reached 2.91%, its highest since the security was reintroduced in 2010. These elevated long-term yields reflect not just immediate war risks but also a persistent term premium—the extra return investors require to hold longer-dated debt amid uncertainty.
The Federal Reserve finds itself in a bind. New York Fed President John Williams acknowledged on July 15 that the Middle East conflict poses “significant and unpredictable risks,” even as the U.S. economy remains resilient. Yet the central bank’s own June minutes revealed a sharp internal divide: nine of 18 officials penciled in at least one rate hike before year-end, a stark shift from earlier cut expectations. Markets now price a 14.4% chance of a July hike, down from over 40% earlier in the week, but still see a 57.1% probability of a move by September.
The housing market is already showing strain. Mortgage applications nationwide fell 2.7% from a week earlier, according to the Mortgage Bankers Association. Purchase application demand has weakened, and pending sales are essentially flat year-over-year. HousingWire notes that the market has historically struggled when mortgage rates exceed 6.64%, a threshold now being tested.