Is oil the reason?

Transcript

1. On 8 October, oil jumped 4%, to $104.
2. And the interest rate
3. that American mortgages follow ended the day lower.
4. The night before, a tanker off Qatar was hit by projectiles.
5. A hurricane was shutting down
6. almost two thirds of America's oil output in the Gulf of Mexico.
7. Yet mortgage rates have climbed every week since late August.
8. Is oil the reason?
9. At the end of August,
10. a 30-year fixed mortgage in America cost 6.66% a year,
11. on average, in loan applications Freddie Mac tracks weekly.
12. It rose every week after that,
13. to 7.4% on 8 October: the highest since November 2023.
14. Over those same weeks, oil rose too.
15. Brent crude cost $89 a barrel at the end of August.
16. American mortgage rates move almost in step with one number:
17. what the US government pays to borrow for 10 years.
18. Freddie Mac found a strong historical link
19. between weekly mortgage rates and 10-year yields.
20. That number has two parts, and you can see both.
21. The government sells ordinary 10-year bonds, and ones protected against inflation.
22. The gap between their rates is a market gauge of expected inflation,
23. risk premium included.
24. If oil raised long-term inflation expectations, that gap might grow.
25. In late August it was 2.33%.
26. On 8 October, 2.35%.
27. It never moved more than a tenth of a point.
28. The rest is the price of borrowing after inflation.
29. It went from 2.34% to 2.87%: almost all of the rise.
30. What pushed it up is unclear.
31. After September's hike, Fed governor Waller named oil prices as one inflation concern.
32. Traders saw an 85% chance of another rise by December.
33. But since mid-September,
34. bets on hikes around the world have shrunk while yields kept climbing.
35. Bloomberg says debt worries are helping push yields higher.
36. The Fed decides again on 28 October.
37. So the 10-year inflation gauge barely moved.
38. Whether oil drove the mortgage rise is still unclear.
39. Mortgages rose a bit more than the 10-year.
40. On a new 30-year loan of $400,000, August's rate meant $2,571 a month.
41. October's means $2,770.
42. Over 30 years, about $72,000 more.