If you’ve ever wondered why mortgage rates rise or fall, the answer almost always comes back to treasuries and bonds. They may sound complicated, but you don’t need a finance degree to understand them. In simple terms, treasuries and bonds are the heartbeat of mortgage rates.

Let’s break down how they work and why they matter when you’re buying, refinancing, or investing in real estate.

What Are Treasuries and Bonds (In Simple Terms)?

U.S. Treasuries:

These are “IOUs” issued by the U.S. government. Investors loan the government money, and the government pays them back with interest.

Considered the safest investment in the world
Used as a benchmark for all other interest rates

Bonds:

A bond is basically a loan. Investors buy bonds from companies, states, or the government, and in return, they earn interest.

Why This Matters for Mortgages:

Mortgage rates move based on investor demand for bonds—especially the 10-year Treasury yield and mortgage-backed securities (MBS).

What Are Mortgage-Backed Securities (MBS)?

Mortgage-backed securities are bonds made up of bundles of home loans.
Investors buy these bonds just like stocks or treasuries.

If demand for MBS goes up → mortgage rates go down
If demand for MBS goes down → mortgage rates go up

It’s all about simple supply and demand.

How the 10-Year Treasury Controls Mortgage Rates

Mortgage rates typically move in the same direction as the 10-year Treasury yield.
Why?

Investors see the 10-year Treasury as:

Safe
Stable
Easy to predict

Mortgages are riskier than treasuries, so lenders charge a “spread” — usually around 1.5%–2.5% above the 10-year Treasury rate.

Example:

If the 10-year Treasury is 4.0%
Mortgage rates might be around 5.5%–6.5%

When Treasury yields rise, mortgage rates rise.
When Treasury yields fall, mortgage rates fall.

Why Treasuries and Bonds Move Every Day

Treasuries and mortgage bonds move based on things like:

Inflation reports
Jobs data
Federal Reserve decisions
Global events
Investor confidence
Recession fears
Stock market changes

When the economy looks weak or uncertain, investors buy bonds → yields drop → mortgage rates fall.
When the economy looks strong, investors pull money out of bonds → yields rise → mortgage rates increase.

What Makes Mortgage Rates Go Up?

Rates increase when:

Inflation is rising
The economy is growing
Investors move money from bonds into stocks
The Federal Reserve signals higher future rates
Job reports show strong hiring

In these situations, bond investors want a higher return, so mortgage rates climb.

What Makes Mortgage Rates Go Down?

Rates fall when:

Inflation cools
The economy slows down
Investors want the safety of bonds
Global tensions push money into U.S. treasuries
The Fed hints at future rate cuts

Lower economic confidence = more bond buying = lower yields = lower mortgage rates.

What Homebuyers Should Watch

You don’t have to follow daily financial news.
Instead, focus on these three indicators:

1. The 10-Year Treasury Yield

If it’s dropping, mortgage rates usually follow.

2. Inflation Reports (CPI/PCE)

Lower inflation = lower rates.

3. Federal Reserve Announcements

They don’t set mortgage rates directly, but their decisions influence investor behavior.

Why Understanding Bonds Helps You Time the Market

If you know how treasuries and mortgage bonds work, you’ll have a good idea of where rates are heading.

For example:

If inflation drops unexpectedly → expect better rates soon.
If job numbers are weak → rates may fall.
If investors rush into stocks → rates may climb.

This helps you decide:

When to lock a rate
When to wait
Whether refinancing makes sense now or later

Bottom Line: Treasuries and Bonds Control Your Mortgage Rate

Mortgage rates don’t move randomly — they follow the bond market, especially the 10-year Treasury and mortgage-backed securities.

When investors feel confident, rates rise.
When investors want safety, rates fall.

The more you understand this relationship, the easier it becomes to make smart decisions when buying or refinancing a home.

______________________________________________________________________________________________________________________________________

Written by: Julia Luis, Loan Officer for Mortgage-World.com, LLC

Julia Luis is a loan officer who covers mortgages and the housing market. Before joining Mortgage-World.com, she was a student at the University of Miami.