If you’ve been hoping for lower mortgage rates, you’re in luck—rates have already begun to drop, and many experts believe there’s potential for even more improvement in the months ahead. The key to understanding where rates might be headed lies in the 10-year treasury yield, a historically reliable indicator that offers insight into long-term interest trends. Here's what you need to know and why the current momentum could be good news for you.

The Connection Between Mortgage Rates and the 10-Year Treasury Yield

For over half a century, the 30-year fixed mortgage rate has closely mirrored the movement of the 10-year treasury yield—a widely followed benchmark for gauging long-term interest rates :

When the treasury yield rises, mortgage rates typically increase. When it falls, mortgage rates usually follow suit. This correlation has been remarkably consistent over time, making the yield a go-to signpost for what may come next.

Experts often refer to the “spread” between the mortgage rate and the 10-year treasury yield. Historically, this spread has averaged about 1.76 percentage points (or 176 basis points). When conditions are stable, mortgage rates tend to hover around that level above the treasury rate.

Signs of Stability: The Spread Is Narrowing

In recent years, this spread has been unusually wide. Why? The market has been grappling with a great deal of uncertainty—economic shifts, inflation concerns, and global events have all played a role. A wider spread often signals caution or fear in the market.

But there’s a bright spot: the spread is beginning to shrink. This is a positive shift, suggesting that confidence is slowly returning and that the path forward is becoming clearer. As more certainty emerges in the economy, the mortgage market may respond with more favorable rates for homebuyers.

As noted in a recent article from Redfin:

“A lower mortgage spread equals lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.”

The 10-Year Treasury Yield Is Also Projected To Fall

And it’s not just the spread offering good news. The 10-year treasury yield itself is also forecasted to decrease over the coming months. This dual trend—a narrowing spread and a declining yield—points to a continued easing of mortgage rates in the foreseeable future.

Let’s break it down: the 10-year yield currently sits at around 4.09%. Add the average spread of 1.76%, and that puts the expected mortgage rate at roughly 5.85%. That’s significantly lower than where rates have been in recent years and could provide meaningful financial relief for buyers and refinancers alike.

While nothing is guaranteed and economic variables like inflation, job growth, and global events can shift projections, the current outlook is positive. Many analysts anticipate a gradual decline in mortgage rates through 2026, with some even suggesting we might see rates dip into the upper 5% range as early as next year.

Bottom Line

Understanding the factors influencing mortgage rates—like the 10-year treasury yield and the market spread—can empower you to make smarter real estate decisions. While it's always wise to stay informed, you don’t have to navigate these changes alone.

For personalized guidance and up-to-the-minute updates, reach out to Mike Panza and the team at Panza Home Group. They’re here to help you understand how these trends may impact your goals and guide you toward the best possible outcome in today’s evolving market.

Contact Mike Panza and the Panza Home Group here.