10-year Treasury is a false indicator of mortgage rates

A new refinance boom has begun. Sparked by a falling GDP and a slowing global economy, U.S. mortgage rates are at their lowest levels since…ever.

If you want to know what mortgage rates are doing on a day-to-day basis, though, you can't get your news from TV. Saddle up with a lender, instead, and learn how to track mortgage rates for yourself.

10-year Treasury is a false indicator

You've probably read it somewhere or heard from your CPA that it's practically "common knowledge" that if you want to know what mortgage rates are doing, you need to track the 10-year Treasury note.

Unfortunately, that's a myth.

You can't watch the 10-year Treasury note and know what mortgage rates are doing. Why? Mortgage rates don't come from the price of U.S. Treasuries; they come from the price of mortgage-backed bonds.

Mortgage bonds and U.S. Treasuries have different market masters and don't move in tandem. If they did, the chart at the top would be linear. Clearly, it's not.

Why does the Treasury myth exist?

The reason why this myth exists is because of the terrific long-term correlation between mortgage bonds and Treasuries. But when it comes to shopping for mortgage rates, "long-term" is a worthless qualifier. Instead, you're in it for the "right now."

So, how poor of a gauge is the 10-year Treasury note for tracking mortgage rates?

Just one time since the financial crisis of 2008 have the average weekly 30-year fixed rate mortgage and the 10-year Treasury note moved in the same direction by the same amount.

That's one week out of 150.

Mortgage rates don't move like treasuries.

How are mortgage rates made?

When banks "make" mortgage rates, it's a simple process.

Rates are based on the "going price" of a mortgage-backed bond. For conforming mortgages, the bonds are backed by Fannie Mae or Freddie Mac; for FHA loans, they're backed by Ginnie Mae.

The bonds trade on Wall Street. Their respective prices (plus applicable loan-level pricing adjustments) determine the mortgage rates you get from your bank. 10-year Treasury notes remain a non-factor.

Tracking mortgage rates online

The problem with mortgage-backed bonds is that there's no real-time website on which to track them. Also, advertised mortgage rates should be treated more as a starting point, and not a conclusion.

This is why it's important to get friendly with your lender. Your lender will have access to accurate, real-time bond data.

When you know how the mortgage bond market is performing, you can know whether it's time to lock your rate or let it float.

Making better mortgage choices starts with tracking the proper data.