U.S. mortgage rates hit 6.49% as Iran conflict roils bond market

The collapse of the U.S.-Iran ceasefire sent bond yields surging and mortgage rates to 6.49%, the highest level in weeks, as investors priced in renewed inflation risk from higher oil prices.

"The bond market is repricing geopolitical risk in real time, and mortgage rates are following because lenders hedge their pipelines in the Treasury market," said James Okafor, rates strategist at Edgen.

The 10-year Treasury yield climbed 12 basis points to 4.57% on Thursday after President Donald Trump declared the Strait of Hormuz ceasefire over and the U.S. military attacked dozens of targets along the Iranian coastline overnight. Crude oil prices jumped about 7% for both U.S. and international benchmarks, though they remain below their springtime peaks. The Dow Jones Industrial Average tumbled more than 800 points, or 1.5%, after hitting a record high just two days earlier.

The jump in mortgage rates translates into roughly $200 in additional monthly costs on a $400,000 loan compared with rates available in early June, when the 30-year fixed averaged 6.05%. The Strait of Hormuz handles about 21% of global oil trade, and any sustained disruption threatens to keep energy prices elevated, feeding into the inflation metrics that underpin long-term bond yields.

Oil-Driven Inflation Fears Reshape Rate Outlook

The resumption of hostilities comes just weeks after investors had welcomed a temporary ceasefire, and the renewed volatility has shifted expectations for Federal Reserve policy. Markets now see a better than 1-in-3 chance that the Fed under Chairman Kevin Warsh will raise interest rates at its July meeting, up from about a 1-in-4 probability on Tuesday before the ceasefire broke down. The central bank is closely monitoring energy prices, which have already pushed inflation well above its 2% target.

The last time geopolitical risk premium pushed the 10-year yield above 4.50% was during the initial U.S.-Israel strikes on Iran in February, when yields briefly touched 4.65% before retreating. That episode preceded a 35-basis-point compression over the following six weeks as diplomatic channels reopened.

The International Monetary Fund this week downgraded its 2026 global growth forecast to 3%, down from 3.5% last year, warning that "the possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions." For U.S. homebuyers, the immediate consequence is clear: borrowing costs are rising just as the spring home-buying season enters its final stretch, and further escalation could push mortgage rates toward 7% if bond yields continue their ascent.

This article is for informational purposes only and does not constitute investment advice.