(Adds background, details on latest data) July 13 (Reuters) - Interest rates on U.S. 30-year mortgages broke above 4 percent this week, rising to their highest in two months in step with the recent rise in U.S. Treasury yields, Freddie Mac said on Thursday. The borrowing cost on 30-year mortgages, the most widely held type of U.S. home loan, averaged 4.03 percent in the week ended July 13, the highest since 4.05 percent in the May 11 week. Last week, the average 30-year rate was 3.96 percent, the mortgage finance agency said. The jump in mortgage rates lowered mortgage application activity to its lowest level in nearly five months last week, the Mortgage Bankers Association data showed on Wednesday.
Bond yields outside the United States have increased on worries that a growing number of central banks are considering either raising interest rates or paring bond purchases if their local economies improve further. On Wednesday, the Bank of Canada, as expected, raised rates for the first time since 2010, pushing its official rate by a quarter point to 0.75 percent. Meanwhile, benchmark 10-year Treasury yields have retreated since Tuesday after Federal Reserve Lael Brainard and Fed Chair Janet Yellen raised caution about further rate increases following a recent softening in domestic inflation.
The 10-year yield was last at 2.352 percent early on Thursday after reaching an eight-week high at 2.398 percent last Friday, Reuters data showed. Below are the latest average mortgage rates in the week of July 13 tracked by Freddie Mac:
Loan type Latest week Previous Year-ago (pct) (pct) week (pct) 30-year fixed 4.03 3.96 3.42 15-year fixed 3.29 3.22 2.72 5-year adjustable 3.28 3.21 2.76
(Reporting by Richard Leong; Editing by Jeffrey Benkoe and Nick Zieminski)