The spread between the 30-year fixed mortgage rate and the 10-year Treasury yield has narrowed to 2.36%, and that matters.

When mortgage rates were in the 7’s, investors were worried about clients refinancing out of their high rates, so investors demanded a large spread to compensate for the risk.

Now, as rates begin to come down and those fears ease, the spread is shrinking, a sign that the market sees less risk of early refis.

Banks are getting a deregulation boost, and Fed rate cuts are looming.

If the 10-year Treasury yield drops to 3.90% (currently at 4.288%) and the spread narrows to 2.25% (currently 2.36%), we could see mortgage rates fall to 6.125%.

And this is just the beginning.

As the Fed continues to cut and the spread keeps tightening, rates will drop well below 6% by years end.

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