The Interplay Between Government Bond Yields and Mortgage Rates
Government bond yields and mortgage rates share an intricate relationship that affects the housing market and the broader economy. Understanding this relationship is essential for both homeowners and potential first-time home buyers. Government bond yields, especially the yield on the 10-year Treasury note, serve as a benchmark for many types of interest rates, including mortgage rates. When the yield on government bonds rises, mortgage rates tend to follow suit, and when bond yields fall, mortgage rates often do too. This correlation exists because both government bonds and mortgages are fixed-income investments. Mortgage rates are influenced by the rates set on government bonds because they compete for the same investors. Investors often compare the yields of these bonds with the returns offered by mortgage-backed securities (MBS), which are the primary drivers of mortgage rates. When bond yields rise, investors can earn higher returns from relatively safer investments like ...