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U.S. mortgage rates usually move in the same direction as long-term bond yields, especially the 10-year Treasury yield, but they do not move point-for-point. A conventional 30-year fixed mortgage is priced through mortgage-backed securities (MBS), lender costs and the compensation investors require for risks such as prepayment. A useful approximation is mortgage rate ≈ 10-year Treasury yield + mortgage spread. The Treasury yield supplies the broad market benchmark; the changing spread explains why your quote can differ from the benchmark and why a Federal Reserve rate cut may not immediately lower mortgage rates.
Why do mortgage rates follow the 10-year Treasury?
The 10-year Treasury note is a useful reference for a 30-year fixed mortgage because its duration is closer to the average life of a mortgage than the overnight federal funds rate is. Although a mortgage contract may run for 30 years, borrowers make principal payments each month and many refinance or sell before maturity. The 10-year yield therefore captures the long-term interest-rate outlook that matters to investors pricing fixed-rate mortgages.
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Investors set the 10-year yield based on expectations for future short-term interest rates, inflation, economic growth, fiscal and monetary policy, Treasury borrowing and a term premium for holding longer-duration debt. Stronger expected growth, higher expected inflation or greater expected Treasury supply can put upward pressure on yields. Weaker growth or demand for the relative safety of Treasuries can push yields down. These are market mechanisms, not rules that produce the same result in every episode.
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When the 10-year yield rises, yields demanded on many other long-term bonds often rise as well, and mortgage rates commonly rise. When it falls, mortgage rates often fall. The relationship is directional rather than mechanical: the mortgage rate also depends on MBS pricing, market volatility, lender economics and the terms of the individual loan.
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How a home loan becomes an investor-priced security
Step 1: A lender originates the mortgage
The rate shown to a borrower is the primary-market rate. It must cover the expected return for the lender or originator as well as the cost of producing, funding and servicing the loan. Underwriting, processing, compliance, hedging, servicing and guarantee charges all affect the economics behind the quote.
Step 2: Loans are pooled into MBS
Lenders commonly bundle qualifying mortgages into mortgage-backed securities and sell those pools to investors. The investor receives principal and interest from the pool rather than from one borrower. Because investors can choose between MBS, Treasuries and other bonds, MBS prices respond to the broader bond market.
Step 3: MBS pricing feeds back into the retail rate
The price investors are willing to pay for an MBS determines its yield. A lower MBS price means a higher yield for the buyer and generally requires a higher mortgage rate from new borrowers. A higher MBS price can support lower mortgage rates, provided lender costs and the borrower’s loan terms do not change.
This chain is why a Treasury move can reach mortgage pricing without the Treasury directly setting mortgage rates. The Federal Reserve Bank of St. Louis describes the outcome this way: “Mortgage rates, while ultimately set by bond market investors, demand, and pricing for long-term risks, are still influenced by monetary policy and financial markets that respond to expectations around inflation and economic growth.” The quotation appears in its educational publication What Determines Mortgage Rates? (2026).
The mortgage-rate equation: benchmark plus spread
For explanation—not for calculating a personal quote—use:
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Mortgage rate ≈ 10-year Treasury yield + mortgage spread
The spread is the extra yield associated with a mortgage loan or MBS over a comparable Treasury. It changes over time and is not one single fee. Analysts often separate it into two practical pieces:
- Secondary spread: the difference between the MBS yield and the Treasury yield. It compensates investors for mortgage-specific cash-flow uncertainty, credit protection or guarantee arrangements, liquidity and prepayment risk.
- Primary-secondary spread: the difference between the borrower’s offered rate and the MBS rate. It reflects origination and servicing, guarantee fees, lender operating costs, hedging and the lender’s return.
The St. Louis Fed gives an illustrative example: a 4% 10-year Treasury yield plus a 2-percentage-point mortgage spread produces a mortgage rate of about 6%. That is an explanatory example, not a current market quote or a forecast.
Why MBS are not Treasuries
Mortgage cash flows can arrive early
A Treasury generally returns principal at a stated maturity. A mortgage pool returns principal gradually through scheduled amortization, home sales and refinancing. Most conventional borrowers can pay off a mortgage early without an investor’s permission. That embedded borrower option makes the timing of MBS cash flows uncertain, so investors demand compensation.
Falling rates create refinancing risk
When mortgage rates fall, borrowers who have higher-rate loans may refinance. MBS investors then receive principal sooner than expected and must reinvest it when available yields are lower. The investor loses the benefit of holding the original higher coupon for as long as anticipated.
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Rising rates extend the life of a pool
When rates rise, borrowers with older, cheaper mortgages have less reason to refinance. The pool can therefore remain outstanding longer, leaving investors holding below-market coupons for an extended period. This “extension” risk is the opposite side of the prepayment option and helps explain why MBS can react differently from Treasuries when rates move sharply.
Credit and guarantee arrangements, liquidity, servicing and intermediation also distinguish MBS from Treasuries. The exact decomposition depends on the particular spread measure: a coupon spread in one study is not automatically the same series as a lender’s primary-secondary spread.
What can widen or narrow the mortgage spread?
Interest-rate volatility
Greater uncertainty about future rates makes the prepayment option harder to value. Investors may demand a larger spread for bearing that risk. When volatility declines, the required compensation can narrow even if the 10-year yield itself changes little.
Refinancing and prepayment expectations
Expected refinancing activity changes how quickly investors expect principal to come back. The Boston Fed’s 2026 analysis attributes about 80% of variation in its coupon spread since 2006 to expectations about interest rates, interest-rate volatility and refinancing costs. That finding applies to the paper’s mortgage-adjusted coupon-spread definition, not to every mortgage-rate series.
MBS and Treasury supply and demand
Investors’ appetite for MBS, the amount of new mortgage supply and the amount of Treasury issuance can alter the relative prices of the two securities. A shift in demand can widen or narrow the secondary spread even when the broad economic outlook is unchanged.
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Lender and origination conditions
Capacity constraints, hedging costs, servicing values, guarantee fees and competition for loans affect the primary-secondary spread. During stressed markets, lenders may protect balance sheets by widening the margin between the rate offered to a borrower and the rate implied by MBS prices.
What the historical statistics actually show
Historical research demonstrates a strong connection without proving a fixed pass-through. The following measures cover different outcomes and periods:
| Statistic | What it measures | Period and source |
|---|---|---|
| 98% of weekly variation | Variation in average 30-year fixed mortgage rates explained by weekly variation in 10-year Treasury yields | Since 1990; Freddie Mac research note, 2019 |
| Approximately 70% | Variation in mortgage spreads over 10-year Treasuries explained by the 10-year rate level, yield-curve slope and implied interest-rate volatility | 20-year sample; Federal Reserve Bank of Dallas analysis, 2026 |
| About 80% | Variation in a defined mortgage coupon spread explained by rate expectations, volatility and refinancing costs | Since 2006; Federal Reserve Bank of Boston analysis, 2026 |
| 0.5 percentage points; 1.01 percentage points | Fannie Mae’s primary-secondary spread averages | 1995–2005; post-Global Financial Crisis period; Fannie Mae analysis, approximately 2024 |
| 1.17 percentage points; 0.71 percentage points; 1.4 percentage points | Fannie Mae’s secondary spread averages | 1995–2005; 2012–2019; January 2022–November 2024; Fannie Mae analysis, approximately 2024 |
The 98% figure is a historical statistical fit for Freddie Mac’s selected data and does not mean 98% of every borrower’s quote is mechanically determined by the 10-year yield. The Dallas and Boston percentages address different spread definitions and should not be combined into one forecast.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.If the Fed cuts rates, will mortgage rates go down?
Not necessarily, and not necessarily immediately. The federal funds target is an overnight rate; a 30-year fixed mortgage is priced in long-term markets. A Fed decision can influence mortgage rates through several channels:
- Expectations about the future path of short-term rates can move Treasury yields before or after an actual policy change.
- Changes in expected inflation and economic growth can push long-term yields higher or lower.
- Purchases or runoff of Treasury and MBS holdings can change demand for those securities.
- Market uncertainty can change the MBS spread even if the policy rate moves as expected.
If investors believe a cut will support stronger growth, keep inflation elevated or leave risk premiums high, long-term yields or MBS spreads may stay high. Conversely, mortgage rates can fall before a cut if markets have already priced in easier policy.
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Federal Reserve researchers Hancock and Passmore reported that the Fed’s accumulation of MBS and Treasury securities lowered MBS yields and mortgage rates by more than changes in market expectations alone would have implied. Their finding concerns large-scale asset purchases and should not be treated as a guaranteed effect of every future Fed action. The research page was last updated June 26, 2020.
Why is my mortgage rate higher than the 10-year Treasury yield?
The Treasury yield is a benchmark for a default-protected, highly liquid security; your mortgage is a loan with different cash flows and costs. The gap can include:
- the MBS secondary spread for prepayment, extension, liquidity and guarantee-related risks;
- origination, underwriting, servicing, hedging and lender operating costs;
- the lender’s required return and compensation for holding or selling the loan;
- loan-level pricing adjustments for credit profile, occupancy, property type, loan size, term, points and loan-to-value ratio.
Consequently, multiplying or adding a fixed number to the 10-year yield cannot produce a reliable personal quote. Two borrowers can receive different rates on the same day, and one borrower can receive different rates from two lenders.
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Check the layers of pricing rather than looking only at the Treasury chart. MBS yields may have fallen less than Treasuries, widening the secondary spread. Volatility or refinancing expectations may have increased. Lender capacity, hedging costs or the primary-secondary margin may also have changed. Finally, your quote may include different points, credits, lock periods or loan-level adjustments than the quote you are comparing.
For a meaningful comparison between two dates or two offers, record the 10-year Treasury yield, the relevant MBS yield or secondary spread, market volatility and refinancing expectations, the borrower rate and primary-secondary spread, and every material loan and lender term. Compare the annual percentage rate and total fees as well as the note rate, and confirm whether each rate is locked for the same period.
A practical way to interpret a rate move
- Identify the benchmark move. Note the 10-year Treasury yield at the time each rate was observed, rather than relying on a headline about “bond yields.”
- Check MBS performance. Determine whether MBS yields moved in the same direction and by a similar amount. A divergence points to a changing secondary spread.
- Assess volatility and prepayment conditions. Large rate swings, changing refinance incentives or unusual supply and demand can alter MBS pricing.
- Separate market pricing from lender pricing. Ask what changed in the primary-secondary spread, points, credits, fees, lock period or underwriting adjustments.
- Compare like with like. Use the same loan type, term, occupancy, loan-to-value ratio, credit assumptions and lock period before attributing a difference to bonds.
The limits of using the 10-year yield as a calculator
- The relationship is strongest as a broad market explanation, not as a promise about a particular lender’s quote.
- Historical averages describe past samples and definitions; they are not current market levels.
- Mortgage products with adjustable rates, shorter terms, government guarantees or unusual features can respond differently from a conventional 30-year fixed loan.
- A daily Treasury move may be offset by an MBS spread move, leaving the borrower rate little changed.
- The best available rate can still be uneconomic if it requires excessive points or carries fees that outweigh the interest saving.
Bottom line for borrowers
Use the 10-year Treasury to understand the direction of long-term mortgage pricing, then look to MBS yields and the two mortgage spreads to understand the size of the move. A Treasury rally can support lower mortgage rates, but prepayment risk, volatility, supply and demand, lender costs and loan-specific adjustments determine how much of that move reaches your closing disclosure. A Federal Reserve cut can influence the process, yet it does not directly set the rate on a 30-year fixed mortgage.
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