The Relationship Between Treasuries, MBS, and Rates
The Federal Reserve sets overnight bank lending rates, not consumer mortgage rates. The economic benchmark for 30-year fixed mortgages is the 10-Year U.S. Treasury Note Yield because average mortgage lifecycle duration is 5 to 8 years.
Historical Spread: 1.5% to 2.0%
30-Year Fixed Mortgage Rate = 10-Year Treasury Yield + Mortgage Spread
The mortgage spread compensates investors for prepayment risk, default risk, and servicing administration. Normal equilibrium sits between 150 and 200 basis points.
Key Economic Reports to Watch
- Consumer Price Index (CPI) and PCE Inflation Reports.
- Non-Farm Payrolls & Labor Market Data.
- Producer Price Index (PPI) wholesale inflation.
Official Regulatory References
- U.S. Department of the Treasury – Daily Treasury Par Yield Curve Rates.
- Federal Reserve Bank of St. Louis (FRED) – 10-Year Treasury Constant Maturity (DGS10).
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