Mohamed El-Erian Says Likey 'We See 8% Mortgages Soon' As US Bond Yields Flirt With 4.5%

What Happened: On Wednesday, economist Mohamed El-Erian took to X, formerly Twitter, to discuss the recent rise in US 10-year government bond yields, which he noted are now “flirting with the 4.50% level.” He indicated that the increase in bond yields is influencing the fixed-income complex, pushing up mortgage and other borrowing costs, while also undermining stocks both directly and indirectly.

El-Erian’s comments come in the wake of a general upward trend in yields – a development that has significant implications for broader market dynamics. The economist emphasized that given the scale of recent movements, the next few trading sessions have assumed even greater importance for the markets’ digestion of the “higher for longer” rate regime.

In a separate tweet, El-Erian warned that “it is likely we see 8% mortgages soon.”

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Why It Matters: The 10-year Treasury closed Tuesday at 4.37% yield, marking its highest level since November 7, 2007. This surge in yields is seen as investors’ anticipation of the upcoming Federal Reserve Open Market Committee (FOMC) rate announcement. September could potentially be the fifth consecutive month of yield increases for the 10-year Treasury, a pattern not seen since late 2021 and early 2022.

Moreover, the yield on the benchmark 10-year Treasury note hit an intra-day high of 4.372% on Tuesday, reflecting investor expectations that the Fed might not soon begin reversing its rate hikes amid strong economic data, a slight uptick in inflation, and rising oil prices.

The Federal Reserve, in its September meeting, chose to maintain the federal funds rate at its existing range of 5.25% to 5.5%, leaving room for possible future rate hikes depending on forthcoming economic data.

Photo Courtesy: Wikimedia Commons

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