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

By the Business News Analysis desk · Published September 29, 2026 · Updated October 6, 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.

What the Thursday average actually measures

Freddie Mac has published a weekly mortgage-rate average since April 1971. Since November 17, 2022, the Primary Mortgage Market Survey has not been a poll of loan officers. It averages rates on applications submitted to Freddie Mac through Loan Product Advisor. The series Freddie Mac publishes is limited to conventional, conforming, fully amortizing home-purchase loans, with conforming loan limits set by the Federal Housing Finance Agency, for borrowers who put 20 percent down and have excellent credit. Loans above those limits, and loans with smaller down payments, are outside that average, so their rates can sit elsewhere even on the same day.

The figure comes out each Thursday at noon Eastern Time, or on Wednesday when Thursday is a federal holiday. It covers applications from 12:00 a.m. Eastern the prior Thursday through 11:59 p.m. Eastern on Wednesday. Because the rate is taken when the borrower applies, it is not necessarily the rate at closing. Since the 2022 change, the survey also no longer reports average discount points: Freddie Mac says points are not always provided with the application data. A quote in your inbox can still differ because of credit score, the size of the down payment, the property, or the day the rate is locked.

The Loan Estimate is on a clock

Once a creditor has an application, the price has to be put on paper. Under the TILA-RESPA integrated disclosure rule, 12 CFR 1026.19(e)(1)(iii), the creditor generally must see that a Loan Estimate is delivered or placed in the mail no later than the third business day after it receives the application. For this rule, an application exists when six items have been submitted: the consumer's name, income, Social Security number to obtain a credit report, the property address, an estimate of the property's value, and the loan amount sought. That list is in 12 CFR 1026.2(a)(3)(ii).

The Loan Estimate is the document that makes a comparison possible. It shows the interest rate, the monthly principal and interest, and the cash due at closing in a standard layout, including any discount points paid to lower the rate. Two lenders' quotes are comparable only if they are for the same loan amount, the same lock period, and the same day, because the bond market that sits under both quotes can move between Monday and Friday. Paying points lowers the rate; whether the cash up front is worth it depends on how long the loan is actually kept, which is the same prepayment question investors are pricing in the spread.

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.