The month of August, in terms of the spread between the 10-year U.S. Treasury rate and the 30-year fixed-rate mortgage rate, was characterized by weekly declines, only to rise slightly by the first week of September. The 10-year U.S. Treasury rate is the rate that the U.S. government is willing and obligated to pay on the 10-year Treasury note, thus making it a risk-free rate upon which financial market participants can price other instruments. The 30-year fixed-rate mortgage rate is one such instrument and the amount by which it exceeds the risk-free rate may be thought of as a risk premium. In August, the spread declined, while the 10-year Treasury rate increased.
The risk-free rate increased in August in large part due to the positive jobs report, as the Labor Department announced on September 4 that the U.S. government added 1.4 million jobs that month, thus reducing the unemployment rate to 8.4% from 10.2% in July. On the other hand, the 30-year fixed-rate mortgage rate showed no general movement in August apart from reaching a record low of 2.88% in the first week, with the remaining weeks’ tracked rates ranging from 8 to 11 basis points above this record low. The data show that Treasury rates rose faster than the 30-year fixed-rate mortgage rate in August. Freddie Mac states that spreads may even decline further but the rise in Treasury rates will make it difficult for mortgage rates to fall more in the upcoming few weeks.