Let’s make the bond market a little less confusing…

Our industry has a language all its own, and sometimes you have to stop and translate what everyone is actually talking about.

Here’s the easy version.

When investors buy bonds, they’re really buying a promise to receive interest over time.

• Bond Price = What investors are willing to pay for the bond.
• Bond Yield = The return (interest rate) the investor earns.

Now here’s the part that seems backward:

When bond prices go UP, yields go DOWN.

When bond prices go DOWN, yields go UP.

Think of it like buying a rental property. If you pay more for the same rent, your return is lower. If you buy it at a bargain price, your return is higher. Bonds work much the same way.

Why do we care?

Because mortgage rates closely follow bond yields, not bond prices. So when investors pile into bonds and prices rise, yields fall, and mortgage rates often improve. When investors sell bonds, prices fall, yields rise, and mortgage rates usually move higher.

If all else fails, just remember this:

Higher bond prices = Lower mortgage rates.

Lower bond prices = Higher mortgage rates.

Now for the good news…

Oil has slipped back below $80 per barrel, and tensions surrounding the U.S./Iran conflict appear to be easing. Both are positive developments because lower energy prices can help reduce inflationary pressure, which is generally supportive of lower bond yields and, ultimately, lower mortgage rates.

We’re not out of the woods yet, but the trend is moving in the right direction.

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