Yale Roth M.A., M.Ed

Daily Trading Of A Mortgage Bond

Today I was asked a mortgage rate question by a homeowner whether the trading of the 30 yr Treasury bond was what caused mortgage rates to change.

The answer tho that mortgage rate question is, “no.”

Mortgage rates are primarily effected by the trading of mortgage backed securities also known as mortgage bonds.

Mortgage backed securities trade every business day, just like stocks trade every business day.

It may be hard to watch in real time the trading of mortgage backed securities, like the Fannie Mae bond; however, as a homeowner or first time home buyer, you can watch follow the yield on the 10 year Treasury note.

See the image above.  It shows the daily trading of a mortgage bond, specifically the Fannie Mae 30 year 4.0% bond.  The individual red and green vertical bars represent the daily price change of the bond.

The yield on the 10 year Treasury note does track mortgage backed security prices, so that can be a good indicator which direction mortgage rates are moving. 

You can see the price and yield of the 10 year Treasury note on any financial web page.

If you see the yield of the 10 year Treasury note going up, mortgage rates or the costs to get a specific mortgage rate will go up.

Conversely, when you see the yield of the 10 year Treasury note go down, mortgage rates and/or the costs to get the mortgage rate will go down.

So, in conclusion, “what makes mortgage rates change?”

It’s the trading and price of mortgage backed securities that effect the direction of mortgage rates.

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