In October 2020, the spread between the 10-year Treasury yield and the 30-year fixed-rate mortgage rate, as measured by Freddie Mac’s Primary Mortgage Market Survey (PMMS), significantly narrowed as Treasury rates were pushed upward in anticipation of a vaccine breakthrough and a rebound in the labor market and as mortgage rates remained low.
At the beginning of October, the 10-year Treasury yield was as low as 0.68% but quickly rose by month-end to 0.88%. In recent days, the rate increased above 0.9%.
The rise in Treasurys is a sure signal of optimism for the U.S. Economy as the 10-year Treasury is considered one of the safest (most risk-free) debt instruments in the world, upon which other financial instruments are priced.
As shown above, the spread approached and entered its normal range of 150 to 200 basis points in October. Despite the typical, pre-pandemic gap being reached, the 10-year Treasury yield and 30-year fixed-rate mortgage rate were not moving in lock step in October. The PMMS’s rate reached a low of 2.8% in the last week of the month. If higher Treasury rates are sustained in the ensuing weeks, it may put upward pressure on mortgage rates, thus restoring the lock-step movement of the two rates.