Are mortgage rates about to rise?

Following the Georgia Senate election results, which gave control of the Senate to the Democrats, along with the House of Representatives and the White House, the yield on the 10-year Treasury Note (10T) – the most sensitive to increased Government spending – jumped from 0.93% on Monday to 1.13% on Friday, based upon the expectation that increased Government spending would lead to more borrowing which would need higher interest rates to attract investors.

Why does this matter for mortgage rates?  Because the rate on the 30-year Fixed Rate Mortgage (FRM) is based upon an extra yield – spread – that investors require over that available on 10T. The national average reported on Thursday ( based on rates from Monday-Wednesday) was a record low of 2.65%, but next week will almost certainly see an increase.

Here are three charts:
The FRM since the beginning of 2020:
Mortgage rates

The 10T yield:
Treasury yield

And the Spread between the two (this chart starts in 2005):
Mortgage rates

For most of the last 15 years the spread has been in the 1.6-1.8% range. The major exceptions have occurred during times of financial stress – in the Great Recession of 2008 and in 2020.

I will add links at the bottom of this article to previous ones describing the relationship between 10T and FRM in more detail.

Meanwhile, note that the FRM is a national average based on rates from Monday-Wednesday, when the yield on 10T was 0.93%, 0.96^ and 1.04%; that the yield used in my spread calculation was Thursday’s 1.08%, and that on Friday it was 1.13%.   That means that the spread between the latest reported FRM – 2.65% – and Friday’s 10T- 1.13% – was just 1.52%, well below the average in recent years of 1.7%.

A number of factors will influence the course of interest rates in the coming months, but at this point it looks as though 2.65% may represent the low point for the FRM.

Mortgage Markets Return to Normal
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Andrew Oliver
Market Analyst | Team Harborside |

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