Mortgage rates climbed back over 6.7% this week, and at first glance, it feels like that shouldn’t have happened. The CPI report that came out the same day was good news - inflation fell from 4.2% to 3.5% annually, and core CPI (which strips out food and energy because they’re more volatile) came in flat for the month. Typically better inflation data should mean rates ease, not spike. So what's going on?
Part of the answer is the obvious one: the ceasefire in Iran broke down again, oil jumped double digits in a single day, and traders are pricing in more inflation pressure ahead regardless of one good print. But there's a second factor that has nothing to do with the Middle East, AI.
WHAT AI HAS TO DO WITH YOUR MORTGAGE RATE
Mortgage rates track the 10-year Treasury yield plus a spread. That's the relationship we always come back to. Treasuries move based on how much investors want to lend to the U.S. government versus lending their money somewhere else. And right now, "somewhere else" happens to be AI bonds.
The handful of companies building the massive data centers behind the AI boom (Microsoft, Amazon, OpenAI, Anthropic, etc.) are spending hundreds of billions of dollars a year on that infrastructure. Some of that gets funded with cash on hand, but a huge amount is being raised through corporate bonds, which work the same way as a Treasury bond: the company borrows money from investors and pays it back over time, plus interest. The difference is that a corporate bond carries more risk than a U.S. government bond, so it has to pay a higher yield to attract the same investor.
In the first half of 2026 alone, six hyperscalers raised $244 billion through bond issuance — that's a quarter of a trillion dollars in six months, from six companies. That took AI-related debt from roughly 1% of the investment-grade bond market to nearly 18%. In July alone, Amazon put out $25 billion in bonds by itself, and in just the first eight days of the month, the market absorbed $32 billion in new AI debt.
Here's the mechanism that matters for us: there's a limited pool of capital that institutions — pension funds, hedge funds, sovereign wealth funds are willing to lend out in bond form. Every dollar that goes into a high-yielding AI bond is a dollar that isn't going into a Treasury. When demand for Treasuries drops, the government has to offer a higher yield to still attract buyers. And since mortgage rates are priced directly off that Treasury yield, upward pressure on Treasuries becomes upward pressure on the rate you're locking in on your next deal.
This isn't a one-time event. It's a structural shift in how capital is being allocated, and it's happening at a scale we haven't seen from corporate borrowers before.
WHAT THIS MEANS FOR THE RATE ENVIRONMENT
Combine the Iran-driven inflation risk with this new AI-driven demand for capital, and the case for rates dropping meaningfully anytime soon gets weaker. We're likely staying in the mid-6% range for the foreseeable future rather than drifting back toward six or below. That's not a crash scenario, rates were about this high a year ago too, and the market absorbed it, but it does mean anyone underwriting a deal on the hope of near-term rate relief needs to rethink that assumption.
WHAT WE DO WITH THIS
None of this changes underwriting philosophy. We buy properties that cash flow at today's rates, not at some hoped-for future rate. We finance with long-term, fixed-rate debt so a rise in the 10-year doesn't touch our cost of capital on deals we've already closed. And on the buy side, a rate environment like this keeps competition thinner, which is exactly the kind of window we look for on value-add multifamily in Southern NH.