How Mortgage Rates Are Connected to the 10-Year Treasury Yield

Mortgage rates fluctuate due to several economic factors, but one of the strongest indicators of where they are headed is the 10-year Treasury yield. Understanding the connection between these two financial metrics can help borrowers and investors make smarter decisions about home loans and refinancing.

What Is the 10-Year Treasury Yield?

The 10-year Treasury yield represents the return investors earn from holding a U.S. government bond for ten years. It is considered one of the safest investments since it is backed by the U.S. government. The yield is influenced by economic conditions, Federal Reserve policies, inflation expectations, and investor demand. Because it reflects broader economic confidence, movements in the 10-year Treasury yield can serve as an early indicator of changes in mortgage rates.

Why Mortgage Rates Follow the 10-Year Treasury Yield

Mortgage lenders use the 10-year Treasury yield as a benchmark when setting interest rates. Since Treasury bonds are a low-risk investment, mortgage lenders must offer higher returns to attract investors to mortgage-backed securities (MBS). Typically, mortgage rates are about 1.5% to 2% higher than the 10-year Treasury yield.

When Treasury yields rise, mortgage rates tend to follow suit. This is because higher yields indicate that investors expect strong economic growth and possibly higher inflation, which could lead to increased borrowing costs. Conversely, when Treasury yields decline, mortgage rates often decrease as well, making home loans more affordable for borrowers.

Recent Trends in the 10-Year Treasury Yield and Mortgage Rates

As of April 2, 2025, the 10-year Treasury yield stood at 4.20%, reflecting a slight increase from 4.17% on April 1, 2025. On the mortgage side, the average interest rate for a 30-year fixed-rate conforming mortgage loan in the U.S. was 6.568% on April 3, 2025. This represents a decrease from 6.632% on April 1, 2025. These figures illustrate the dynamic relationship between the 10-year Treasury yield and mortgage rates, as both are influenced by broader economic conditions and investor sentiment.

How the Federal Reserve Affects Treasury Yields and Mortgage Rates

The Federal Reserve plays a key role in shaping the movement of Treasury yields and mortgage rates. The Fed sets the federal funds rate, which influences short-term borrowing costs. Although the Fed does not directly control long-term rates, its policies on interest rates and bond purchases can impact Treasury yields and, in turn, mortgage rates.

For instance, if the Fed raises interest rates to combat inflation, Treasury yields may rise as investors anticipate tighter monetary policy. This can lead to higher mortgage rates. On the other hand, if the Fed signals a pause or a rate cut to stimulate economic growth, Treasury yields may drop, bringing mortgage rates down as well.

How Borrowers Can Use This Information

By tracking the 10-year Treasury yield, homebuyers can get a sense of where mortgage rates might be headed. If Treasury yields are rising, mortgage rates may increase soon. If yields are falling, it could signal a good time to secure a lower rate.

Tips for Homebuyers and Refinancers

1. Monitor Treasury Yield Trends: If you’re planning to buy a home or refinance your mortgage, keeping an eye on the 10-year Treasury yield can help you time your loan application for the best possible rate.

2. Consider Rate Locks: If rates are trending upward, locking in your mortgage rate sooner rather than later can help you avoid higher borrowing costs.

3. Stay Informed on Federal Reserve Decisions: The Fed’s actions influence Treasury yields and, by extension, mortgage rates. Follow Fed announcements and interest rate projections to anticipate changes in the market.

4. Work on Your Credit Score: Even if rates are rising, a higher credit score can qualify you for better loan terms, potentially offsetting some of the increases in interest rates.

5. Explore Loan Options: Different mortgage products have varying rates. Consider whether a fixed-rate or adjustable-rate mortgage (ARM) is best suited to your financial goals.

Final Thoughts

The 10-year Treasury yield is a crucial indicator of where mortgage rates may be headed. While external economic factors and Federal Reserve policy decisions also play a role, understanding the relationship between Treasury yields and mortgage rates can help borrowers make more informed decisions. Whether you are purchasing a new home or refinancing an existing loan, staying up to date with market trends can ultimately save you thousands of dollars in interest payments over the life of your mortgage.