30-Year Mortgage vs 10-Year Treasury
The 30-year fixed mortgage rate closely tracks the 10-year Treasury yield plus a spread that reflects credit risk, prepayment risk, and mortgage-backed-security pricing.
- 30-Year Mortgage
- 10-Year Yield
Mortgages aren't priced directly off the Fed funds rate — they're priced off the 10-year Treasury yield plus a spread, usually 150–250 basis points wide. The spread absorbs three risks that Treasuries don't carry: credit risk (borrowers can default), prepayment risk (homeowners refinance when rates fall, cutting into lender returns), and the capital costs of funding mortgage-backed securities.
The spread widens when MBS markets are stressed — it reached roughly 300 bps in 2022–23, well above its long-run average, as the Fed shrank its MBS holdings and volatility spiked. It narrows when those conditions reverse. Homebuyers watching mortgage rates often look at the 10-year yield because the spread tends to be mean-reverting: a 10-year move of 50 bps usually shows up in mortgage rates within a few weeks.
Frequently asked questions
Why are mortgage rates higher than the 10-year Treasury yield?
The 30-year mortgage is priced off the 10-year Treasury plus a spread, usually 150–250 basis points. That spread compensates lenders for three risks Treasuries don't carry: credit risk (borrowers can default), prepayment risk (homeowners refinance when rates fall), and the capital costs of funding mortgage-backed securities.
Why did the mortgage spread widen in 2022–23?
The spread reached roughly 300 basis points, well above its long-run average, as the Fed shrank its mortgage-backed-securities holdings and rate volatility spiked. The spread tends to be mean-reverting, so a 50-basis-point move in the 10-year typically shows up in mortgage rates within a few weeks once conditions stabilize.
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