Interest rates on 30-year fixed-rate mortgages tend to follow which financial indicator?

The interest rates on 30-year fixed-rate mortgages are primarily influenced by the 10-year Treasury note rate because mortgage lenders seek to align their long-term lending rates with the yields of government securities that investors consider stable and safe. The 10-year Treasury is a benchmark for a variety of interest rates, including mortgages, because it reflects investor expectations about future economic conditions, inflation, and overall interest rate movements.

When the yield on the 10-year Treasury note rises, mortgage rates typically rise as well, as lenders need to offer competitive returns to attract investors to their mortgage-backed securities. Conversely, if the yield decreases, mortgage rates tend to follow suit. This close relationship helps ensure that borrowers and lenders are both adequately compensated for the risk and time value of money associated with long-term loans.

Understanding this dynamic helps individuals grasp how broader economic factors, as reflected in government securities, can impact their mortgage options. This contrasts with other financial indicators such as the Federal Reserve rate, inflation rate, or the prime interest rate, which influence other types of lending and borrowing but do not directly set the mortgage rates in the same manner.