A Very Unusual Move in Mortgage Rates vs the 10-Year US Treasury Yield

Mish

Mortgage rates and the 10-year treasury yield have gone opposite ways. This is not normal.

Long Term Chart of Mortgage Rates vs the 10-Year Treasury

Mortgage Rates vs 10-Year Treasury Yield 2004-Present

Change in Mortgage Rates vs Change in 10-Year Treasury Yield

Change in Mortgage Rates vs Change in 10-Year Treasury Yield

Change Since August 6, 2020

  • The 30-year mortgage rate is down 9 basis points
  • The 10-year mortgage rate is down 23 basis points
  • The 10-year US Treasury yield is up 72 basis points

The current divergence is more than a bit unusual.

What's It Mean?

  1. Realistically, mortgage rates ought to be 75 to 100 basis points higher than they are.
  2. The Fed via QE asset purchases is doing a far better job manipulating mortgage yields lower than it has done controlling yields on long-term treasuries.

On February 8, the Fed noted Monetary Policy Will Stay Accommodative For a Very Long Time. I commented "Like Forever".

My question on February 14 still stands: How Long Before the Fed Tries to Manipulate Long-Term Rates Lower?

Mish

Comments (24)
No. 1-13
PostCambrian
PostCambrian

It could be either a) investors are starting to consider MBS the equivalent of a Treasury Bond since both are backed by the US government or b) the Fed is buying MBS in order to keep the rates low to keep the housing market up.

Eddie_T
Eddie_T

I think this means I need to borrow some money while it’s cheap.

KidHorn
KidHorn

If the 10 year stays elevated, mortgage rates will likely have to follow. Unless bond investors become a lot less risk averse than they've been historically.

Mackkenzie
Mackkenzie

You need to consider the short term treasury bills market which has falling yields. Jeff Snider points out that there are several examples where falling yields in treasuries were a leading indicator for a collapse in long bond yields.

It's possible that mortgage rates are following the same trends driving treasuries and are actually indicating where things are going more than the other way around.

John8421
John8421

It means foreigners are dumping treasuries....They do not own mortgages. No one but the Fed buys newly issued mortgages at these rates!

Sechel
Sechel

spreads are wide between the 10 year and the mortgage rate. Originators don't need to raise mortgage rates

Bam_Man
Bam_Man

Because....."Markets".
LOL....

Mackkenzie
Mackkenzie

Meanwhile, an auction for $60 billion two year treasury notes just completed with a yield of 0.119%. We're pretty much at zero percent. The continuing decline in shorter term notes is a better indicator of what's happening than the long bond.

RonJ
RonJ

"Mortgage rates and the 10-year treasury yield have gone opposite ways. This is not normal."

There is nothing that is normal anymore. All one has to do is look at the FED's balance sheet.

JoeJohnson
JoeJohnson

I just don't see how 10 years or mortgage rates can go higher? Maybe a little bit for a short time but any sustained, upward move would DESTROY the economy on life support now.

Six000mileyear
Six000mileyear

If the FED is buying 30 year and neutral on the 10 year; then it is trying to stimulate the real estate market while giving banks some room to increase their spreads beween deposits and consumer credit.

Sechel
Sechel

You think mortgage rates need to increase?

Flatlaxity
Flatlaxity

The Fed has been buying $40B/mo of GSE debt; that's one-half of the level that it's been buying for the US legislature/administration in treasury purchases. No wonder mortgage rates haven't moved. The split is incredible.


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