Why Your Mortgage Rate Follows the 10-Year Treasury Bond

If you’ve ever wondered why mortgage rates seem to jump around from week to week, the answer lies in a surprisingly predictable relationship: mortgage rates closely track the yield on 10-year U.S. Treasury bonds. Understanding this connection can help you make sense of rate movements and time your home purchase or refinance more strategically.

The Basics: What Are Treasury Bonds?

U.S. Treasury bonds are IOUs from the federal government. When you buy a 10-year Treasury bond, you’re essentially lending money to Uncle Sam for a decade. In return, the government pays you interest—that interest rate is called the “yield.”

These bonds are considered the safest investment in the world because they’re backed by the full faith and credit of the United States government. The country has never defaulted on its debt, so investors view Treasuries as virtually risk-free.

Why 10 Years Matters

You might wonder why the 10-year bond specifically matters for mortgages, rather than the 2-year or 30-year bond. The answer is practical: most homeowners either move or refinance within about 10 years, even if they have a 30-year mortgage.

The 10-year timeline matches up reasonably well with how long lenders can expect to actually hold most mortgages before they’re paid off or refinanced. This makes the 10-year Treasury yield the natural benchmark for pricing mortgage rates.

The Spread: Why Mortgages Cost More

Here’s an important point: mortgage rates don’t equal Treasury yields. They’re consistently higher—typically by 1.5 to 2.5 percentage points. This difference is called the “spread.”

Why do mortgages cost more? Risk. Unlike Treasury bonds, mortgages come with real risks for lenders. Homeowners can default on their loans. People can prepay their mortgages when rates drop, forcing lenders to reinvest that money at lower rates. Houses can lose value. Even with insurance and careful underwriting, these risks require lenders to charge a premium over the risk-free Treasury rate.

The spread also covers the operational costs of originating and servicing mortgages. Banks need to pay loan officers, underwriters, and customer service staff. They need to maintain systems to collect payments and handle escrow accounts. All of this costs money that gets baked into the mortgage rate.

How the Connection Works in Real Time

When you read that “mortgage rates rose this week,” what usually happened is that 10-year Treasury yields climbed first, and mortgage rates followed. The connection works like this:

If Treasury yields rise from 4% to 4.5%, mortgage rates might jump from 6% to 6.5%. The spread stays relatively stable, but both numbers move up together. Conversely, when Treasury yields fall, mortgage rates typically decline as well.

This happens because investors are constantly choosing between different investment options. If Treasury bonds start offering higher yields, mortgage-backed securities need to offer higher returns too, or investors will simply buy Treasuries instead. Lenders pass this cost along by raising mortgage rates.

What Moves Treasury Yields?

Since Treasury yields drive mortgage rates, understanding what moves Treasury yields is crucial. Several factors play a role:

Inflation expectations are perhaps the most important. When investors expect prices to rise faster in the future, they demand higher yields to compensate for the declining purchasing power of the dollars they’ll be repaid with. This is why inflation reports often trigger immediate moves in both Treasury and mortgage rates.

Federal Reserve policy heavily influences yields, though not always in straightforward ways. When the Fed raises its short-term policy rate, longer-term Treasury yields often rise too—but not always. Sometimes, if investors believe Fed rate hikes will successfully slow the economy and reduce inflation, longer-term yields might actually fall.

Economic growth expectations matter as well. Strong economic data often pushes Treasury yields higher as investors anticipate more inflation and less need for stimulus. Weak economic reports can send yields lower as investors seek safety and expect more accommodative monetary policy.

Global demand for U.S. bonds affects yields significantly. When foreign investors—particularly central banks in countries like China and Japan—buy large quantities of Treasuries, they push prices up and yields down. When they sell or reduce purchases, the opposite occurs.

When the Relationship Breaks Down

The 10-year Treasury and mortgage rates usually move in lockstep, but not always. Sometimes the spread widens or narrows, and understanding why helps you spot potential opportunities.

During times of financial stress, the spread often widens. In 2008 and again in 2020, the gap between Treasury yields and mortgage rates ballooned. Why? Lenders became more cautious about risk, concerned about defaults, and less certain about the value of mortgage-backed securities. They demanded a bigger premium for taking on mortgage risk.

Conversely, when mortgage markets are functioning smoothly and competition among lenders is fierce, spreads can narrow. This is good news for borrowers—you’re getting closer to that risk-free Treasury rate.

The volume and efficiency of the mortgage market also matters. If lenders are overwhelmed with applications, they might let rates drift higher relative to Treasuries to slow demand. When business is slow, they might tighten spreads to attract borrowers.

What This Means for Your Home Purchase

Understanding the Treasury-mortgage connection gives you a practical tool for monitoring rates. You don’t need to become a bond trader, but checking the 10-year Treasury yield can give you advance warning of where mortgage rates might be heading.

Many financial websites publish the current 10-year yield in real time. If you’re in the market for a home or considering a refinance, glancing at this number daily takes just seconds and can help you anticipate rate movements before your lender updates their rate sheet.

Watch the trend, not just the level. If Treasury yields have been climbing steadily for several weeks, mortgage rates will likely continue rising too. If yields are falling, it might be worth waiting a bit to lock in your mortgage rate.

Pay attention to major economic releases. Monthly jobs reports, inflation data, and Federal Reserve meetings often trigger significant moves in Treasury yields. These are released on predictable schedules, so you can plan around them if you’re trying to decide when to lock a rate.

Remember that timing isn’t everything. While understanding the Treasury-mortgage relationship can help you make informed decisions, don’t let it paralyze you. If you find the right house at the right time in your life, a quarter-point difference in your mortgage rate shouldn’t derail your plans. You can always refinance later if rates fall significantly.

The Bigger Picture

The connection between 10-year Treasury bonds and mortgage rates is one of the most reliable relationships in finance. It’s not perfect—spreads vary, and sometimes the correlation weakens temporarily—but over time, these two rates move together with remarkable consistency.

For you as a borrower, this relationship is empowering. It means mortgage rates aren’t arbitrary numbers plucked from thin air. They’re the product of transparent market forces that you can observe and understand. The 10-year Treasury yield is published every second of every trading day, giving you a window into where your mortgage rate is likely heading.

Next time you’re checking mortgage rates, take a moment to look up the 10-year Treasury yield too. You’ll start to see the patterns, understand the spread, and develop an intuition for whether rates are likely to rise or fall. That knowledge won’t guarantee you’ll get the absolute lowest rate possible, but it will help you make more confident, informed decisions about one of the biggest financial commitments you’ll ever make.