What drives Mortgage Rates in one chart

I can explain as often as I do that the 30-year Fixed rate Mortgage (FRM) is based upon the yield on the US 10-year Treasury (10T), not the Federal Reserve’s Fed Funds rate (FFR), but still I read regularly comments such as “mortgage rates will move up after the Fed increased its interest rate.”
Look at this chart for the last few months, the dates being those when the Federal Reserve increased its interest rate:

Note the correlation between the 10T (red line) and FRM (blue) – and the lack of correlation between FFR and FRM.

Let’s look at this another way, the spread (difference) between the FRM and 10T and between FRM and FFR:

Over the last 5 months, the spread between FRM and 10T has been in a tight band between 2.69% and 2.85%, while that between FRM and FFR has dropped by a huge 1.7%.

For a more detailed explanation of what drives mortgage rates – and why the FRM will fall at some point – read Why Mortgage Rates Will Fall

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  • Andrew Oliver, M.B.E., M.B.A.
    Real Estate Advisor

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