The average 30-year fixed mortgage rate jumped to 7.45% on Thursday as investors continued to sell off US government debt. The benchmark 10-year Treasury yield hit 5.20%, its highest level since the summer of 2007, while the 30-year yield reached 5.4816%, a peak not seen since 2004. This acceleration in yields followed weak investor demand at recent Treasury auctions, further tightening financial conditions for consumers and corporations.

Markets are now pricing roughly a 71% chance that the Federal Reserve will hike rates in October, following a 25 basis point increase last week. The surge in borrowing costs is forcing banks to hedge holdings of bonds that yield under 5% and is driving up the costs of auto and personal loans. Volatility in the MOVE index has also increased, signaling that traders are anticipating a policy response to mitigate the pressure on the bond market.