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Treasury Market and Mortgage Rates

Treasuries and Mortgage Rates

Yields on 10-year and 30-year Treasury securities are typically used to set long-term mortgage rates. Loans with short initial terms (1-, 3-, and 5- year ARMs, e.g.) are pegged to shorter-term securities. So when bond yields drop, typically, conventional mortgage rates fall as well (see historical graph below). Conversely, when yields rise, so do mortgage rates. Why? If a lender chooses to sell your mortgage loan to an investor, the lender will likely use Treasury yields as a benchmark for value.

30 Year T-Bond vs. 30 Year FRM, Prime Rate, 1977 - 2006
30 Year T-Bond vs. 30 Year FRM, Prime Rate, 1977 - 2007 { Obtaining Permission to Reproduce }

Treasury Yield Curve

The Yield Curve - the yields of U.S. Treasury bill, notes and bonds - can reveal a lot about markets. The "usual shape" of the yield curve is positive; that is, with short term rates lower than long term. Almost all recessions have been preceded by an inverted curve (with short term rates higher than long term), and such a curve usually points to lower rates in the future. A steeply positive curve points to future higher rates.

Treasury Yield Curve
Treasury Yield Curve
Treasury Yield Curve
Treasury Yield Curve
Quotes:
30 Yr T-Bond
, 10 Yr T-Note, 5 Yr T-Note
(Yahoo! Finance)
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Treasury Yield Curve Dynamics
Historical graphs showing how the shape of the the yield curve changes over time.

Reuters.com: Latest Treasury Bond News and Financial Information: ( today.reuters.com/investing/financebonds.aspx )

Bloomberg.com: Rates & Bonds: ( www.bloomberg.com/markets/rates/ )

Economic and Financial News

CNN/Money (money.cnn.com) - SmartMoney (www.smartmoney.com) - MarketWatch (www.marketwatch.com) - Forbes (www.forbes.com)
The Economist (www.economist.com) - Kiplinger's (www.kiplinger.com) - The Wall Street Journal (www.wsj.com)

 

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