What determines mortgage rates, the Fed Funds rate or Treasury Bonds? October 2, 2007
Posted by Patti Shawgo in Interesting Stuff, Mortgage News.trackback
Here are two charts that I hope will give a little insight into how mortgage rates are determined. In the first chart we see the Fed Funds rate (which is the rate you hear about when “the Fed cuts rates”) compared to average conventional conforming mortgage rates from 2000 to 2005. The second chart compares the 10 year treasury bond yield to average conventional conforming mortgage rates from the 70’s to 2001. I’m looking for charts with similar time periods, but for now these will have to do.
I think it’s pretty plain to see that there is no direct correlation between the Fed Funds rate and mortgage rates, and there couldn’t be a more direct correlation between the 10 year treasury bond and mortgage rates. That’s the number we care about people!
[...] And remember: MORTGAGE RATES ARE NOT TIED TO THE FED RATE YOU HEAR SO MUCH ABOUT! Please read this for more info on that. [...]
I agree that there is a correlation between the 10 year and the mortgage rate. I disagree that one can determine what mortgage rates will be based solely on the 10 year treasury note. Mortgage rates are more tied to the Fannie Mae 30 year bond series then anything else.
Matthew is correct. I have a comparison chart of the two if you would like to email me I will send it to you.
What determines rates
How about a longer period for the chart comparing Fed rates to mortgage rates? You only show about 6 years for the fed/mortgage comparison and yet you felt it important to show 30 years for the treasury/mortgage rate comparison. How about comparing apples to apples…it’s easier to notice a pattern over the long term. And how about one that compares all three, for the same time period? or even one that shows fed rate verses t rates? come on, this is just irresponsible and silly, and possibly misleading.