As the 2024 U.S. presidential race heats up, the financial world is preparing for more than just a political showdown it’s bracing for the revival of Trump-era economic policies. One often-overlooked consequence of this return could be a rise in long-term bond yields which directly affects mortgage rates across the country.
This article dives deep into how the “Trump trade” the market’s response to Trump-aligned fiscal policy could push mortgage rates higher, potentially pricing out homebuyers, cooling the real estate sector, and shaking the economy.
What Is the “Trump Trade”?
The term “Trump trade” refers to financial market behavior that follows policy expectations tied to Donald Trump’s economic agenda. Key themes include:
- Lower taxes
- Looser regulations
- Aggressive infrastructure spending
- Potential trade protectionism
While these policies are pro-growth in theory, they are often inflationary and fiscally expansive. As a result, they can increase the supply of government bonds driving Treasury yields higher and raising mortgage rates.
How Bond Yields Impact Mortgage Rates
Mortgage lenders use the 10-year U.S. Treasury yield as a benchmark for determining fixed-rate mortgages. When bond yields rise usually in response to inflation expectations or fiscal deficits lenders adjust mortgage rates upward to account for higher risk and reduced bond value over time.
Fact: The 30-year mortgage rate generally tracks the 10-year Treasury yield plus a margin of 1.5%–2.0%.
Potential Mortgage Rate Impact from Bond Yield Increases
| 10-Year Treasury Yield | Estimated 30-Year Mortgage Rate | Monthly Payment on $400,000 Loan |
|---|---|---|
| 4.0% | 5.5% | $2,271 |
| 4.5% | 6.0% | $2,398 |
| 5.0% | 6.5% | $2,528 |
| 5.5% | 7.0% | $2,661 |
| 6.0% | 7.5% | $2,796 |
Note: Figures assume 30-year fixed-rate mortgage, excluding taxes and insurance.
Why Trump’s Return Could Push Rates Higher
1. More Government Borrowing
Trump-aligned policies often involve cutting taxes while simultaneously increasing federal spending (e.g., on defense or infrastructure). This leads to higher deficits, requiring more Treasury issuance and that drives yields up.
2. Inflation Risk Returns
Stimulative fiscal policy in a tight labor market may stoke inflationary pressures, especially if supply constraints return. Investors demand higher returns to compensate, which leads to upward pressure on long-term interest rates, including mortgage rates.
3. Reduced Investor Confidence in Fiscal Discipline
Global bond investors may become cautious if they believe the U.S. will abandon deficit reduction, which could drive foreign capital outflows, weaken the dollar, and boost borrowing costs.
Real-World Signs: Markets Are Already Reacting
Since Q2 2025, the 10-year Treasury yield has moved above 4.5% a level not seen since late 2023. Analysts attribute some of the pressure to early expectations of a Trump return and the associated fiscal loosening narrative.
Banks and lenders are also reassessing risk pricing models, which means higher mortgage rates may be “baked in” even before any formal policy change.
Track bond yields in real time
Implications for Homebuyers and the Housing Market
If mortgage rates climb further due to Trump trade dynamics, the ripple effects could be wide-ranging:
● Affordability Crisis Worsens
Homebuyers already stretched by 7% rates will find it harder to qualify, reducing demand and leaving sellers without offers.
● Housing Inventory Stagnates
Owners with 3%–4% mortgages will be less willing to sell and trade up, worsening the housing inventory crunch.
● Rental Demand Surges
As homeownership becomes more expensive, many Americans may remain renters longer, which could drive rental prices even higher in metro areas.
How Investors Should Respond
1. Watch the Bond Market Closely
Yields are the canary in the coal mine. If Treasury yields push past 5%, mortgage rates above 7.5% are highly likely.
2. Adjust Real Estate Strategies
Builders and developers should hedge risk in case of cooling buyer demand. Investors in multifamily properties may benefit from increased rental demand.
3. Plan Around Political Risk
Uncertainty surrounding the 2024 election cycle should prompt risk-averse planning. Fixed-income investors may want to diversify or shorten durations.
Why This Matters
While Trump’s potential return to office is still hypothetical, the financial impact of his policy expectations is already materializing in the markets. For homebuyers, this could mean facing even steeper mortgage costs in the months ahead. And for the broader economy, it adds another layer of uncertainty at a time when stabilization was just taking hold.
Understanding the intersection between politics, fiscal policy, and interest rates will be key for navigating the housing market in 2025.
