10-Year Treasury Bonds and Mortgage Rates

10-year Treasury bonds and mortgage rates are intertwined, so knowing how each affects the other can help you make informed, wise real estate decisions. Understanding how the 10-year Treasury yield manipulates the rise or fall of mortgage rates allows you to plan for your future and monitor your financial health.

What is a 10-year Treasury Bond or Note?

The term bond and note are interchangeable in this context. A 10-year Treasury bond is a form of debt provided by the U.S. government as a way to generate revenue to fund government activities. The bond pays the holder a fixed amount of interest every six months, and once the note matures in 10 years, the government is obliged to pay holders the face value.

This type of note has the longest maturation date out of all Treasury notes. It’s one of the more important instruments of government debt and is monitored heavily by the national and international finance community. Because of this, it is often used as a benchmark on which home mortgage rates are based.

How are the 10-year Treasury Note and Mortgage Rates Interrelated?

At various times, the interest rate on 10-year Treasury bonds, or T-bonds, will change. Depending on when one purchases a T-bond, they are provided a fixed interest rate. However, that rate may be different than the one that was provided on bonds purchased in previous years. It is these shifting yields that can affect national mortgage rates.

Let’s break this down. A successful investor is on the hunt for the best rate of return on the money they want to invest. Usually, investors will seek out safe, secure investments that offer reliable, steady returns on their money. Before investing, they will often compare projected returns via different markets - i.e. certificates of deposits, mortgage-backed securities, Treasury notes, and more. Because Treasury notes are backed by the U.S. government, they are considered extremely safe, thus making them very popular.

Mortgage-backed securities are based on the value of home loans and can offer higher yields, but they inherently carry more risk. If Treasury yields climb, investors seeking to place money in mortgage-backed securities ask for higher returns because the risk remains high. Without the offer of a higher yield, there isn’t anything stopping them from instead investing in T-bonds that suddenly have higher yields and are less risky.

Other Impacts on Mortgage Rates

It’s not just T-bonds affecting mortgage rates, although they do play a large part. Plenty of other social, economical, and political events can influence the rise and fall of mortgage rates. Currently, the inflation rate, geo political events, market conditions, and government policy are at play on U.S. mortgage rates.

It’s important to work with a trusted real estate and mortgage advisor who is aware of ever-changing market conditions. We can advise you on prudent real estate decisions, including when to buy and when to wait. Contact me at [email protected] today to learn more.?