Spread Between Treasury and Mortgage Rate Decreased in August

The spread between the 10-year U.S. Treasury rate and the 30-year fixed-mortgage rate in August was depicted by weekly declines, only to rise minutely by the first week of September. The 10-year U.S. Treasury rate is the rate that the U.S. government is willing and obligated to pay on the 10-year Treasury note, thus making it a risk-free rate upon which financial market participants can price other instruments. The 30-year fixed-rate mortgage rate is one such instrument. In August, the spread declined, while the 10-year Treasury rate increased. The risk-free rate declined in August thanks to a positive jobs report and the resulting lowering of unemployment from 10.2% in July, to 8.4% in August. the 30-year fixed-rate mortgage rate however, showed no general movement in August apart from reaching a record low of 2.88% in the first week, with the remaining weeks’ tracked rates ranging from 8 to 11 basis points above this record low. The data reveals that Treasury rates rose faster than the 30-year fixed-rate mortgage rate in August. Freddie Mac states that spreads could possibly decline further but the rise in Treasury rates will make it difficult for mortgage rates to fall more in the upcoming few weeks.

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