The 10-year Treasury bond and mortgage rates are closely linked because:

• Both represent long-term borrowing costs.
• Both compete for the same pool of investors.

When the 10-year Treasury yield rises, mortgage rates typically increase as well. This is because:

• Lenders must keep mortgages attractive compared to Treasury notes, which are seen as low-risk investments.
• Higher Treasury yields signal that borrowing is becoming more expensive overall.

In response, lenders raise mortgage rates to:

• Stay competitive with Treasury investments.
• Ensure they offer returns high enough to attract investors.

In a nutshell:

Lenders add a “spread” (a percentage point difference) on top of the yield to account for the higher risk of mortgages compared to Treasuries.

The 10-year Treasury yield acts as a benchmark for mortgage rates.

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