The 10-year Treasury yield, currently at 4.61%, has risen by 31 basis points since the pre-election period, reflecting market anticipation of significant policy changes under President Trump's administration, according to Citi's latest report. Citi's rates team expects these yields to remain elevated in the near term, driven by potential inflationary fiscal policies such as tax cuts, tariffs, and labor shortages. "The overhang from potentially inflationary policies may remain through at least the first year of Trump’s second term," Citi analysts note.
This environment is likely to maintain wider spreads between the 10-year Treasury and 30-year fixed-rate mortgage (FRM) rates, which are currently at an elevated 240 basis points compared to the historical average of 170 basis points. As a result, Citi forecasts that mortgage rate declines in 2025 may be modest, with rates potentially falling to the mid-6% range by year-end. The report underscores the impact of these fiscal policies on the broader economic landscape, particularly in the housing and construction sectors, as they navigate the complexities of Trump's policy agenda.