Divergence between 10 yr TB and 30 yr fixed mortgage
They're supposed to move in sync, as I understand it. Yet the 10 yr is now at 3.30, down almost 20% over the past month. Yet the average rate for a 30 yr fixed rate mortgage has barely moved. Is there just a lag for the mortgage rate to adjust? Or are lenders pricing in additional risk? Or something else?
Thinking about it some more, I'll try and answer my own question. The Fed (and other entities) are buying Treasuries, while no one is buying mortgages
Looking at the past month, 10Y Treasuries have dropped 54 basis points.
30 year mortgage rates have dropped 40 basis points.
They aren’t ever going to move the same amount- but at least for the past month they seem to be following the same pattern as they normally would.
Mortgages are indexed to treasuries, which is part of why they move in step. However, lenders add a spread on top to make money and will price high volatility into that spread. They want to limit a situation where a loan made today loses value next month because rates have gone up (ie SVB held to maturity securities).
Essentially lenders are protecting themselves from volatile swings in interest rates.
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