Everyone is talking about how the 10 year US treasury is 0.5% but how does this affect the typical investor who’s buying 1-3 million dollar properties? Aren’t they borrowing on the prime rate or some other index? What would be the most popular index for a smaller investor? Why is everyone saying to refinance today if 1) there’s a lag in rates 2)Not borrowing on the 10 year?
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The ten-year treasury is arguably the most important financial instrument in the world. It's the primary driver of mortgage rates and business debt.
how does it affect rates that aren’t the 10 year though
A mortgage has a length of 25-30 years, but the amount owning decreases over time. Therefore, most of the risk is in the first third, giving it a duration of ~ 7 years. A bond has its risk at the end due to the principal repayment. Therefore, a 10-year treasury has a duration of ~7 years. This similar duration creates a link between the two rates.
Interesting take. Never thought about it that way. Do you have any additional literature/links you can share?
I'd just google it. My rule of thumb is that the mortgage rate is the 10-year yield plus 1%. Therefore, a mortgage rate of 2% is possible today.
Depends on where they borrow from. If they are using banks, the bigger ones are pricing SWAPs. If they are using smaller banks, those banks as still going to have to lower rates, it will just be lagging and have a floor.
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