How Does the 10 Year Treasury Affect Mortgage Rates?

For mortgage borrowers, it’s more important than most to think about 10-year Treasury rates. Since mortgage rates are often closely aligned with the yields on 10-year Treasury bills, keeping an eye on this rate can help borrowers determine when to take out a mortgage or if it’s a good time to refinance.

But there is a lot of mystery surrounding 10-year Treasury rates. Below is an overview of Treasuries, what you need to know, and why it’s important to pay attention to these rates. For homeowners who are considering refinancing, this is a great time to visit Credible to view loan options from several lenders with fewer forms to fill out.

How does the 10-year bond affect mortgage rates?

Any business or entity can sell bonds, but treasury bills are specifically guaranteed by the government, making them the “safest” investment since they are guaranteed to be paid back. When investors buy bonds, they are essentially lending money to the entity – in this case, the government – and in return, investors get a certain percentage back in the form of “interest” until maturity. obligation.

Treasury bills have different maturity rates, ranging from 10 to 30 years. The money is locked in during this time, but once a bond matures, the owner is paid back the face value. In the meantime, investors earn the interest rate fixed on the investment.

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An important term to know when it comes to bonds is yield.

The yield on US bonds is the amount the government will pay on the bonds they sell. When yields are low, it means demand is high and the government has no trouble selling these bonds to investors. When yields are high, it means that demand is low and the government is looking to attract investors with higher interest rates.

The rate of return on 10-year treasury bills is important beyond the rate of return an investor can expect; it is also often used as a sign of investor sentiment: whether investors feel confident enough to invest in the current economy. When demand is high, it often means that the stock market and the economy are changing and investors want a “low risk” investment vehicle. When demand is weak, that means the outlook and return on other investments, such as stocks and mortgages, is better (and, generally, because the economic outlook is a bit rosier as well).

Over the past 20 years, when mortgage rates have fallen, rates of return have also fallen. It was the same for this unprecedented year. Following the COVID-19 outbreak, Treasury bill rates fell to an all-time low thanks to strong demand; many investors wanted the security of bonds during a global health crisis.

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Other Factors That Affect Mortgage Rates

While important, the yields on 10-year Treasury bills are only one factor that can affect mortgage rates. Current unemployment rates, the rate of inflation, and current housing conditions all influence the tenuous formula government agencies use to determine interest rates. With so many factors at play, it’s easy to see why rates can go up and down on a weekly basis, and fluctuate based on what’s happening in the news, in the world, and in the US economy.

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