Trump Wants Rate Cuts to Help Housing. Europe’s Case Undermines His Pitch.

The EU flag flies in front of the European Central Bank in Frankfurt, Germany, in June. (KIRILL KUDRYAVTSEV/AFP via Getty Images)

Yields on European sovereign bonds are casting doubt on President Donald Trump’s idea that a lower U.S. policy rate will lower mortgage costs and help people buy homes.

While Trump has pressed the Federal Reserve to cut benchmark interest rates for months, he recently cited America’s housing market as an argument. In an interview at the White House last month, Trump said Fed should lower rates to “unleash” the housing market

“Let people buy, and refinance, their homes!” he wrote in a social media post before the Fed said last month that it was keeping its target for the fed-funds rate at 4.25% to 4.5%. The homeownership rate in the U.S. is at its lowest in more than five years.

People want to buy homes, but a combination of elevated home prices and relatively high mortgage rates have made that harder. Mortgage rates depend on the yield on 10-year Treasury debt, and while that yield sometimes falls following Fed rate cuts, it doesn’t always happen.

Moves in Europe’s bond markets are a sign that Fed rate cuts wouldn’t force this longer-term yield down.

The European Central Bank has cut rates eight times since June 2024, but yields on longer-dated sovereign bonds from the three largest and most influential economies in the euro zone have mostly gained since then. The German 10-year bund yield is up 0.22 percentage point since the first cut. Yields on 30-year bunds have risen 0.631 percentage points to settle at 3.34% on Friday, the highest in about 14 years.

The yield on French 30-year debt was also at a 14-year high on Monday. It has gained 0.699 percentage point since the first ECB cut, while the 10-year yield has risen 0.288 point. The Italian 10-year yield has fallen 0.383 points, but the 30-year has increased by a bit more than half a percentage point.

And in the U.K., where the Bank of England cut rates as recently as Aug. 6, the 30-year yield rose to 5.61% on Monday, putting it near its highest level since 1998.

Longer-end rates rise for all sorts of reasons, not just due to actions from central banks. Part of the issue in Europe is concern about the scale of government spending, and thus debt.

“The bigger question is whether European yields are evolving into new higher and permanent range, and how governments square the fiscal circle around (US) demands for increased defense spending to guarantee future security on the eastern flank,” wrote Kenneth Broux, strategist at Société Générale.

In Japan, weak demand at an auction of 20-year bonds on Tuesday has reminded investors about the country’s own fiscal concerns. The 30-year yield closed just three basis points, or hundredths of a percentage point, below a record high.

Worries about larger government budget deficits, fueled in part by Trump’s tax and spending bill, are also reflected in U.S. longer-term yields, even though tariffs partly offset the loss in revenue. Customs duties brought in a record $28.4 billion in July

Still, the bottom line is that a Fed cut wouldn’t fix the housing market. The central bank doesn’t control long-term yields.

“The Fed knows how this [higher yields in Europe] feels after they’ve cut 100 bps and we of course all watch to see how the long end trades from here as we are about to get some more cuts,” wrote Peter Boockvar, an independent economist and market strategist.

The Fed lowered rates by a full percentage point from September through December last year, but has kept them steady since then.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.