Surging U.S. Treasury yields have triggered a wave of mortgage-related hedging activity, intensifying volatility in the bond market and contributing to the sharpest jump in interest rates in over a year. According to Reuters, investors holding mortgage-backed securities (MBS) have been forced to sell government debt and Treasury futures to manage growing risks tied to rising rates and slowing mortgage refinancing activity.
The selloff in Treasuries accelerated after stronger-than-expected April inflation data led markets to reassess expectations for Federal Reserve policy. Investors who had earlier anticipated rate cuts are now increasingly pricing in the possibility of another Fed hike this year. The benchmark 10-year Treasury yield climbed 23 basis points in a week and has risen more than 60 basis points since the start of the U.S.-Israel-Iran conflict, reflecting heightened inflation and geopolitical concerns.
