Will a September Rate Hike Make Mortgages Heavier? 10-Year Bond Yield Hits 18-Year High – Market Eyes '3 Key Indicators' for Rate Hikes

On September 7, the Central Bank of Taiwan, commissioned by the Ministry of Finance, auctioned additional 10-year central government construction bonds. The highest winning bid rate soared to 1.969%, the highest since October 2008. The public is concerned whether mortgage rates will follow suit, increasing repayment burdens. While a rate hike at the Central Bank's September 17 board meeting is not certain, inflation, market interest rates and bank funding conditions, and economic growth have become three crucial signals for homeowners.

What does the surge in bond yield mean?

According to Central Bank data, on June 9 this year, the highest winning bid rate for the 10-year government bond auction was 1.7900%. By August 7, during a re-auction of the same bond series, the highest rate climbed to 1.969%. This indicates that the market's required return for a 10-year government loan has clearly risen compared to previous months.

On September 7, the Central Bank, commissioned by the Ministry of Finance, auctioned additional 10-year central government construction bonds. The highest winning bid rate reached 1.969%, the highest since October 2008. (Photo credit: Ko Cheng-hui)

However, the real factors influencing the Central Bank's September decision are whether prices, core inflation, market liquidity, and the international economic and financial environment continue to change. In June, the Central Bank projected the full-year CPI growth rate at around 1.91% and core CPI at about 1.90%, deeming overall inflation outlook moderate, and thus kept interest rates unchanged. In other words, strong economic growth does not necessarily mean a rate hike.

What is CPI?

CPI (Consumer Price Index) is a metric measuring changes in the overall cost of living. It reflects whether current prices are higher or lower compared to the past.

Will mortgage rates rise?

Bank mortgage rates are typically influenced by deposit and funding costs, internal fund pricing, credit controls, borrower profiles, property collateral, and individual bank strategies. Although the 10-year bond yield rose from 1.79% to 1.969%, it does not automatically mean mortgage rates will immediately increase by 0.179 percentage points.

What are the three most important numbers for a rate hike?

To determine whether a rate hike will occur in September, the three most critical indicators are inflation, market interest rates and bank funding conditions, and economic growth. First, if CPI and core CPI continue to rise, especially if service price pressures do not ease, the Central Bank may adopt a more cautious stance on inflation.

Second, market interest rates and bank funding conditions must be monitored. If short- and long-term rates continue to rise and bank funding costs increase, it indicates that financial markets are already reflecting a higher interest rate environment.

Third, economic growth must be observed. Taiwan's economy has performed strongly this year, driven by the AI industry. If high growth coincides with rising inflationary pressures, the Central Bank will face greater policy trade-offs. However, if prices cool down again, the Central Bank may still choose to hold rates steady.

Taiwan's economy has performed strongly this year, driven by the AI industry. (Photo credit: Wei Hsin-yang)

How should homeowners respond?

Homeowners should pay attention to the type of loan they hold. For index-linked or adjustable-rate mortgages, confirm how often the benchmark rate is adjusted, the margin added, and when your loan will be repriced after the central bank or bank adjusts the benchmark rate.

For wealth management-type mortgages, the interest rate on drawn amounts is typically higher than standard home loans, and varies significantly by bank and borrower profile.

Is Taiwan's era of cheap funding ending?

The real signal conveyed by the bond yield nearing 2% is that Taiwan's long-standing cheap funding environment is showing signs of repricing. If market rates continue to rise, the affordability of borrowing for home purchases, new mortgages, refinancing, or using wealth management loans may become a bigger concern than whether home prices will fall.

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