Why Mortgage Rates Follow the 10-Year Treasury Yield

On 1 October 2026, the average 30-year fixed mortgage rate in the US was 7.28%, the highest since November 2023. The figure comes from the weekly survey by Freddie Mac, a US housing agency. The Federal Reserve (the Fed) sets a target range for the Fed Funds Rate, the overnight rate banks charge each other. Over the past year, the Fed lowered that range by 0.25 percentage points. The mortgage rate rose anyway.

It followed the yield on 10-year US government bonds, called Treasuries. A yield is the yearly return a buyer gets at today's price. A percentage point, or point, is the plain gap between two rates, so 7% to 8% is a rise of 1 point. Over the past year, the 10-year yield rose 1.14 points, while the mortgage rate rose 0.94 points. Here is why the two move together, what sits in the gap between them and why that gap widened after 2021.

This guide covers the US market. UK fixed mortgage rates follow a different benchmark: swap rates, the market price for fixing an interest rate for a set term. The Bank of England says the two-year swap rate largely reflects expected moves in its own policy rate, Bank Rate.

A 30-year fixed mortgage locks in one interest rate for the whole loan. In the US, borrowers can repay early. They do so when they sell the home, or when they refinance, which means switching to a new loan at a lower rate. So the lender can get its money back well before 30 years.

Fannie Mae, another US housing agency, puts the duration of the average mortgage at 7 to 10 years. Duration measures how much a loan's price moves when rates change, as we show in Bond Prices and Yields. It is measured in years. The sooner the money comes back, the lower it is.

A 10-year Treasury note bought at a 5.24% yield has a duration of about 7.7 years, on our calculation. That makes it the closest match among Treasuries. Fannie Mae names the 10-year note as the benchmark for mortgage rates for this reason.

Lenders can also sell their loans. Sold loans are pooled into mortgage-backed securities (MBS), bonds built from bundles of home loans. Three US housing agencies guarantee them: Fannie Mae, Freddie Mac and Ginnie Mae.

Fannie Mae breaks the mortgage rate into three parts: the 10-year Treasury yield, lender costs and the extra yield MBS pay over Treasuries. So when the 10-year yield rises, the mortgage rate rises with it, unless one of the two gaps narrows.

The chart shows Freddie Mac's 30-year fixed rate and the 10-year Treasury yield, as monthly averages since April 1971. The two lines move together. The mortgage rate's monthly average peaked at 18.45% in October 1981. Its lowest was 2.68%, in December 2020. In September 2026, the mortgage rate averaged 6.86%, against 4.99% for the 10-year yield.

On monthly averages, the correlation between the two is 0.99. A correlation of 1 would mean they move in perfect step.

The chart shows the gap between the two rates, called the mortgage spread, as monthly averages since April 1971. Its median is 1.68 points. The September 2026 average was 1.87 points.

Fannie Mae splits the spread into two parts:

Economists at the Federal Reserve Bank of Dallas found that lender costs averaged about 1.05 points in 2022 and did not explain the widening. The MBS spread did. In 2021, the gap averaged 1.51 points. By June 2023, it had reached 2.97 points, the widest since August 1986.

Early repayment hurts MBS investors in a specific way. Borrowers refinance when rates fall. So investors lose their high-rate loans just when new loans pay less. The Dallas Fed study found that rate swings in 2022 made the borrower's right to repay early more valuable. That right costs MBS investors money. So they were paid a higher yield over Treasuries.

The Fed's own buying also changed. Under Quantitative Easing, the Fed bought MBS with newly created money. Its holdings peaked at $2.74 trillion in April 2022. They were $1.90 trillion on 30 September 2026, as the Fed let them run off under Quantitative Tightening. Fannie Mae's research says that run-off put upward pressure on the MBS spread. We cover the Fed's bond buying in What Is Quantitative Easing?

The chart shows the weekly mortgage rate, the daily 10-year yield and the top of the Fed's target range since January 2025. The Fed cut three times from September to December 2025. It then raised its range to 3.75% to 4% on 16 September 2026, its first rise since July 2023. Net of the cuts and the rise, its range is 0.25 points lower than a year ago.

The mortgage rate tracked the 10-year yield through all of it. It fell from 6.91% in January 2025 to a low of 5.98% on 26 February 2026. From that low, it has risen 1.30 points to 7.28%. Over the same months, the 10-year yield rose 1.22 points, from 4.02% to 5.24%.

The Fed still matters. The 10-year yield partly reflects where buyers expect the Fed Funds Rate to be over the next decade. We explain this in What Is the Yield Curve? We look at where rates may head in Will Interest Rates Go Down?

A few points help:

US mortgage rates follow the 10-year Treasury yield because the average 30-year mortgage behaves like a 10-year Treasury. The rate is the 10-year yield plus a spread for lender costs and early repayment. On 1 October 2026, that was 5.24% plus 2.04 points.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

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DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.