Monday, April 11, 2016

Mortgage Rates and Ten Year Yield

by Bill McBride on 4/11/2016 11:28:00 AM

With the ten year yield falling to 1.73%, there has been some discussion about whether mortgage rates will fall to new lows. Based on an historical relationship, 30-year rates should currently be around 3.7%.

As of Friday, Mortgage News Daily reported: "the average lender continuing to quote conventional 30yr fixed rates of 3.625% on top tier scenarios." Pretty close to expected.

The graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Mortgage rates and 10 year Treasury YieldCurrently the 10 year Treasury yield is at 1.73% and 30 year mortgage rates were at 3.59% according to the Freddie Mac survey last week.

To reach new lows (on the Freddie Mac survey), mortgage rates would have to fall below the 3.35% lows in 2012.

For that to happen, based on the historical relationship, the Ten Year yield would have fall to under 1.5%.

So I don't expect new lows on mortgage rates unless the Ten Year yield falls further.