Why mortgage rates follow the 10-year Treasury, not the Fed

By the Business News Analysis desk · Published September 29, 2026

Thirty-year mortgage rates are set in the bond market. Here is how the 10-year Treasury yield, mortgage-backed securities and the spread between them determine what borrowers pay.

Home buyers are often surprised that mortgage rates do not simply rise and fall with Federal Reserve decisions. The reason is that a 30-year fixed-rate mortgage is a long-term loan, funded mostly by investors who buy mortgage bonds, and its price is set in the same market as other long-term bonds. The best single guide to that market is the yield on the 10-year US Treasury note.

Where mortgage money comes from

Most US mortgages do not stay with the lender that made them. Loans that meet the standards of Fannie Mae and Freddie Mac, or that are insured by federal agencies such as the FHA and VA and guaranteed through Ginnie Mae, are pooled into mortgage-backed securities (MBS) and sold to investors such as pension funds, insurers, banks and foreign institutions. The lender gets its cash back and can lend again.

The rate a lender offers you therefore depends on what investors will pay for the mortgage bonds your loan will end up in. When MBS prices fall (and their yields rise), mortgage rates rise, and vice versa.

Why the 10-year, not the 30-year

A 30-year mortgage almost never lasts 30 years. People sell their homes, refinance when rates drop, or pay early. Historically, the typical mortgage has been paid off or refinanced well within ten years. So investors compare mortgage bonds with Treasury securities of a similar effective life, and the 10-year note is the closest widely traded benchmark. That is why the two tend to move together week to week.

The spread, and what drives it

Mortgage rates are always higher than the 10-year Treasury yield. The difference is called the spread. Over long periods it has often been in the range of roughly 1.5 to 2 percentage points, but it has been noticeably wider at times, including during parts of 2022 and 2023. Several things feed into it:

• Prepayment risk. Mortgage borrowers can repay early, and they tend to do so exactly when rates fall, which is when investors least want their money back. Investors demand extra yield for that risk. When rates are volatile, the risk is larger and the spread widens.
• Credit and guarantee costs. Fannie Mae and Freddie Mac charge guarantee fees, and lenders price in loan-level adjustments for credit score, down payment and loan type.
• Lender costs and margins. Origination, servicing and hedging all cost money, and lenders' appetite for new business changes with volume. When lenders are busy, they have less reason to compete on price.
• Demand for MBS. The Federal Reserve bought large amounts of mortgage-backed securities during and after the 2008 crisis and again from 2020. When it stopped buying and let its holdings run off, one large buyer left the market, which is one of the factors analysts cite for wider spreads in recent years.

Where the Fed does come in

The Fed influences mortgage rates indirectly. The 10-year Treasury yield reflects investors' expectations for short-term interest rates over the next decade, expected inflation, and a "term premium" for holding a long bond. When the Fed signals a path of higher or lower policy rates, or when inflation data changes expectations, the 10-year yield moves. And through its balance sheet, the Fed affects demand for both Treasuries and MBS.

But a single rate decision that markets already expected usually has little effect on mortgage rates on the day. What matters is whether the outlook changed.

How to follow mortgage rates

Freddie Mac publishes its Primary Mortgage Market Survey each Thursday, reporting average rates on 30-year and 15-year fixed-rate mortgages. It is a useful trend measure, but it is an average for borrowers with strong credit and a sizable down payment; your own quote will depend on your credit score, loan-to-value ratio, loan type, points paid and the lender. Daily indexes from other providers move faster, and the 10-year Treasury yield itself is quoted continuously.

Practical takeaways

• Watch the 10-year yield and inflation data more than the FOMC calendar if you are timing a rate lock.
• Compare lenders on the same day. Because pricing changes daily, comparing a quote from Monday with one from Friday tells you little. Use the standardized Loan Estimate to compare rate, points and fees.
• Understand points. Paying discount points lowers your rate; whether it is worth it depends on how long you expect to keep the loan.
• Know the spread can narrow. Even with no change in Treasury yields, mortgage rates can fall if volatility eases and the spread returns toward its historical range.

The bottom line

A fixed mortgage rate is roughly the 10-year Treasury yield plus a spread that pays investors for prepayment risk and covers guarantee fees and lender costs. The Fed shapes both parts over time, but day to day, mortgage rates are set by the bond market.

This article is general information, not financial advice.