Why Mortgage Rates Just Jumped—And How the Bond Market and Global Tensions Are Behind It
By Darick Hensel

If you’ve been watching mortgage rates lately, you’ve probably felt a little whiplash. After months of optimism that we might finally see some rate relief, things took a sharp turn in the wrong direction. What’s behind the rise? The bond market. And underneath that, a tangle of sticky inflation, shifting Federal Reserve policy, and some growing global tensions that most headlines don’t connect to mortgage rates—but they should.

Let’s unpack what happened, why it matters, and how foreign governments and trade issues have helped stir the pot.

Bond Market 101: Where Mortgage Rates Begin

Mortgage rates don’t exist in a vacuum—they’re tied closely to the bond market, especially the 10-year U.S. Treasury yield. When investors sell off government bonds, prices drop and yields rise. That’s important because mortgage-backed securities (MBS)—the stuff that actually drives your mortgage rate—compete with Treasuries for investor dollars.

So when Treasury yields rise, MBS yields have to rise too to stay attractive. That directly impacts mortgage rates. And over the past few weeks, those yields have surged.

What Sparked the Sell-Off?

Two things hit the bond market hard in quick succession:

1. The March Consumer Price Index (CPI) report showed inflation running hotter than expected—for the third month in a row. Core CPI (excluding food and energy) rose 3.8% year-over-year, much higher than the Fed’s 2% target.

2. The Fed’s messaging made it clear they’re not rushing to cut rates. Earlier in the year, markets were betting on three to four cuts in 2024. Now? That’s down to one or two—and possibly none if inflation doesn’t cool.

When investors saw that inflation is still sticky and rate cuts might be off the table, they dumped bonds. The 10-year Treasury yield spiked to over 4.50%, its highest level since last fall. That pushed mortgage rates up—fast. The average 30-year fixed mortgage rate jumped from around 6.82% to 7.10% in a matter of days.

Foreign Governments and U.S. Debt: A Shrinking Appetite

Here’s the part most folks don’t talk about: foreign governments are buying less U.S. debt—and that’s adding fuel to the fire.

Historically, countries like China and Japan have been massive buyers of U.S. Treasuries. That demand helps keep yields lower. But that’s been changing. Over the past year:

• China’s holdings of U.S. Treasuries dropped from about $860 billion to $775 billion—a 10% decline.

• Japan, still the largest foreign holder, reduced its holdings to around $1.1 trillion, down from over $1.3 trillion just a couple of years ago.

That’s a major pullback in demand. And less demand means the U.S. has to offer higher yields to attract buyers—which ultimately pushes mortgage rates higher.

Why the pullback? Part of it is economic diversification, but a lot of it ties back to global trade tensions.

Trade War Fallout and Rate Volatility

The U.S.-China trade war didn’t just hit soybeans and semiconductors—it rippled into the bond market, too.

As tariffs escalated and political tension deepened, China began reassessing how much U.S. debt it wanted to hold. At the same time, it’s investing more in gold and emerging market debt as alternatives. That reduction in demand makes the U.S. more reliant on domestic buyers or other foreign governments—at a time when the U.S. is issuing record levels of debt to fund spending and stimulus.

And that creates volatility.

Without strong international demand to absorb new Treasury issuance, the market becomes more sensitive to inflation surprises and Fed messaging. That’s exactly what we’ve seen over the last few weeks.

What This Means for Borrowers

When Treasury yields spike, MBS investors demand higher returns. Lenders pass that cost on to borrowers in the form of higher mortgage rates. So even if the Fed holds its benchmark rate steady, mortgage rates can climb—fast—based on what’s happening in the broader bond market.

For someone looking at a $500,000 mortgage, a move from 6.75% to 7.10% adds about $115 per month to the payment. That’s over $1,300 per year, just from a quick market reaction.

Strategy Beats Timing

The lesson here isn’t to panic—it’s to plan.

Trying to time the bond market is like playing chess against a hurricane. Rates are going to bounce around. But working with a mortgage expert who understands these market dynamics can help you choose the right loan strategy—whether that’s locking early, floating to capture a dip, or using creative products like ARMs, buydowns, or physician loans that offer flexibility.

The most important thing, be ready to act fast, if anything in the past 2 weeks have taught my clients. It is that "If you like it, Lock it!" Holding out for a little more in monthly savings has cost many of my clients all of the savings they could have had. Now they wait for another dip.

In the end...

Mortgage rates didn’t spike in a vacuum. They responded to real fears about inflation, shifting Fed expectations, and deeper structural changes in the bond market—including reduced demand from foreign governments and the long shadow of the U.S.-China trade war.

Understanding those forces gives you an edge. Because in a world of volatility, strategy matters more than ever.

— Darick Hensel