Bond yields spiked post-election. What does it mean for mortgages?

Yields on both 10-year and 2-year Treasurys zoomed up Wednesday morning following the expected Republican sweep of the presidency and Congress.

Another factor likely affecting those, however, is the Federal Open Market Committee meeting taking place over the next two days. Expectations are for a 25 basis point reduction in short-term rates.

"The jump in the 10-year is the result of bond market volatility in advance of tomorrow's FOMC meeting and the prospects for tax cuts and rising deficits under a Trump administration," a statement from the Mortgage Bankers Association said.

When the FOMC cut rates 50 basis points at its September meeting, 10-year yields and the mortgage rates they help to price began their current series of increases.

The proposed series of tax cuts proposed by the Trump campaign is also having an effect. An Oct. 28 analysis from the Committee for a Responsible Federal Budget found Pres.-elect Trump's plans would add $7.75 trillion to the national debt.

"The bond market is signaling today that all of that future deficit spending is not making it feel good," Paul Hindman, an industry consultant said. "I think that Trump has told us what he's going to do, and I think he's going to do it, and I think it's going to cost a fortune, and mortgage rates just don't have the chance under that kind of inflationary pressure."

As a result, mortgage rates are likely to go higher.

"We will not have rate relief, we will not have refinance relief, and we will not have housing inventory relief, because he's going to deport all the people that build houses," Hindman said.

Selma Hepp, chief economist at Corelogic, puts the increase primarily on the shoulders of the election results as well and the Fed could even change direction again as a result.

"Expectations and now realization of the 'red sweep' means higher debt and deficit concern and as a result higher for longer borrowing rates as well as mortgage rates," Hepp said. "Also, some uncertainty around which policies are going to be implemented that will lead to more inflationary pressures, which would keep the Fed on a hawkish path."

As of 10 a.m. on Wednesday morning, the 10-year yield was at 4.46%, up 17 basis points from the previous day. The 2-year was at 4.28%, up 8 basis points.

But at that same time, Zillow's mortgage rate tracker put the 30-year fixed at 6.56%, down by 2 basis points from the previous day. By 11:30, however, the 30-year FRM was back at 6.58%,

Notwithstanding, mortgage rates are likely to drift upward as a result of this increase in the bond market, Odeta Kushi, deputy chief economist at First American Financial, said.

"With mortgage rate relief delayed, the housing market faces yet another headwind," Kushi said. "Higher rates continue to sideline potential buyers by straining affordability and strengthening the rate lock-in effect for sellers, limiting the momentum for market recovery."

This increase is likely just a short-term effect, with the long range view being more positive.

"However, over the next year we anticipate gradual declines in mortgage rates, consistent with the Fed's longer-term projections on the future path of interest rates, which should help stimulate the market," Kushi said.

Between the weeks of Sept. 26 and Oct. 31, rates for the 30-year FRM rose 64 basis points, according to Freddie Mac. Closing price on the 10-year yield rose 46 basis points over the same time frame.

In the days since, the 10-year generally held close to the 4.3% level until the post-election spike.