Decoding the 10-Year Yield: A Quick Guide to Mortgage Rates

Ever wonder why the 10-year Treasury yield is like the puppet master of mortgage interest rates? Let's break it down in simple terms.

The 10-Year Yield 101

The 10-year Treasury yield is basically the interest rate the U.S. government pays when borrowing money for a decade. But here's the twist – its movements have a direct impact on your mortgage rates.

Why It Matters for Mortgages

1. **Rate Benchmark:** Think of the 10-year yield as a benchmark for long-term interest rates. It sets the stage for what lenders charge on things like mortgages.

2. **Economic Weather Vane:** Changes in the 10-year yield give us a clue about the economy. If it's up, things might be looking good, possibly leading to higher mortgage rates. If it's down, economic concerns might mean lower mortgage rates.

3. **Keep an Eye on Indicators:** Watch out for economic indicators like inflation rates and job numbers – they sway the 10-year yield.

4. **Timing is Key:** Knowing when the 10-year yield moves can help you time your mortgage decisions.

A quick forecast of where to expect the 10 year yield and mortgage rates to go. HouseingWires economist Logan Mohtashami does a great job of breaking it down. 

For 2024, the 10-year yield range will be similar to 2023, but with a few different variables to watch.

  • 10-year yield range: 4.25%-3.21%
  • Mortgage rates: between 7.25%-5.75%

A key level to watch for the 10-year yield is . To go below this level last year, labor would need to break, so I borrowed Gandalf the Grey’s catchphrase: “You shall not pass.” And the 10-year yield did not pass that level in 2023!

However, if the labor or economic data gets weaker, we can break through the line of 3.37%, which means 2.72% on the 10-year yield is in play for 2024. This could mean sub-5% mortgage rates if the spreads get better — a win for the housing market.. If the spreads are still bad, mortgage rates will be between 5%-6%. If the 10-year yield gets above 4.25%, the U.S. economy has outperformed again, as it did in Q3 when it grew at 5% and jobless claims fell.

Here is a chart of the 10-year yield with the inflation growth rate data tied to it for 2023:

Now let’s talk about mortgage rates!

The spread between the 10-year yield and mortgage rates can get better in 2024, which means mortgage rates could be 0.625% to 1% lower this year. With the Fed no longer in hiking mode, any economic weakness on the labor side is a better backdrop to send mortgage rates lower. Unlike 2023, this year there are more positive variables that could send mortgage rates lower rather than higher.

So, in a nutshell, the 10-year Treasury yield is like the weather forecast for your mortgage rates. Stay tuned and stay informed.

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