Do 10 Year US Treasury Note yields have an Influence on Mortgage Interest Rates?

Listen to my Podcast on this subject.

Yes, they have been an influence in recent years. But first a little economics discussion, history and then some current events….

When people/institutional investors invest money to make more money, they want not only the amount they invested but a little something “extra” for their money (i.e., that little extra is a return). What yield means is the Rate (i.e., percentage) of Return (ROR) on that investment. In strong economic times, investments flow to more risky, higher yield (ROR) investments.  To entice people to buy US Treasuries, the US Government may drop their cost to you (i.e., discount to a lower price). But the opposite is true in uncertain and bad economic times.  Since more investors wants safer investments in those times, demand increases the prices of those “safer” investment choices of treasury notes.  So you can see, depending on investors beliefs of the direction and changes in the future of our economy, different thoughts on the safety of each investment choice is the investors main concern.

Note: US Treasury Notes are sold to people/institutional investors online at auctions through See the image below on the notes.

Over the past 20 years, based on changes in employment, housing crisis, and other demographic and economic events, fewer people have remained in their homes over a 20-30 year period like they had in the past. In fact, more households were moving on average every 7 years.  Now, due to housing crisis fears of mid 2000’s and other factors, that demographic as changed a little to people wanting to stay in their homes for at least 10 years. Therefore, it is common belief that the 10 Year Treasury yield  more accurately predicts the movement of fixed rate conventional 30 year mortgage loan rates.

So, the answer to my question is both: YES and NO

Answer = YES:  Over the past 20 or so years, yields on the 10 year US Treasury notes have moved in direction comparable to the fixed rate conventional mortgage rates. Based on this article from The Balance: How Treasury Notes Affect Mortgage Rates.  U.S. Treasury bills, bonds, and notes directly affect the interest rates on fixed-rate mortgages. How? When Treasury yields rise, so do interest rates. That’s because investors who want a steady and safe return compare interest rates of all fixed-income products. They compared yields on short-term Treasurys to certificates of deposit and money market funds. They compare yields on long-term Treasurys to home loans and corporate bonds. All bond yields are affected by Treasury yields since they compete for the same type of investor.

Answer = NO:  Based on Mortgage Daily News articles:  Yes, Mortgage Rates are Lower and 10yr Yields are Higher Today & No, Mortgage Rates Aren’t Based on 10yr Treasury Yields…True, US Treasuries set the tone for almost any interest rate in the US. – it’s their yield that runs point for most other comparative investments. But when economic events change there could be a lag or movement in opposite directions…which is what we’ve recently experienced now that mortgage rates moved lower and 10 Year US Treasury yields moved up.

So for now, I lean to the side of common thought that YES, 10 year treasury note yields DO predict or influence mortgage interest rates and the current marketplace factors is just an anomaly.

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