Bond Market Dynamics May Prolong High Mortgage Rates Into 2026

Mortgage rates could remain elevated through 2026 despite anticipated Federal Reserve rate cuts, creating persistent challenges for homebuyers and businesses. The divergence between short-term policy rates and long-term bond yields reflects deeper market forces than central bank actions alone.

Ten-year Treasury yields—the benchmark for 30-year mortgages—are being driven by inflation expectations and investor risk appetite rather than Fed policy. This decoupling suggests rate cuts may not translate into meaningful relief for housing affordability. "The market is pricing in a bull steepening scenario where the yield curve adjusts asymmetrically," notes Ian Lyngen of BMO Capital Markets.

Structural factors including sticky inflation, Treasury supply dynamics, and global capital flows are overwhelming traditional monetary policy transmission. The resulting persistence in mortgage rates above 6% could suppress housing market activity and delay corporate capital expenditures throughout 2026.