In September 2020 and thru the first week of the 2020’s fourth quarter, the 10-year Treasury Constant Maturity rate trended slightly higher, while the 30-year fixed mortgage rate, as determined by Freddie Mac’s Primary Market Mortgage Survey (PMMS), trended lower.
The net result of these movements was that the overall spread trended lower in September. The PMMS’s latest mortgage rate of 2.87% is one basis point from the record low reached in mid-September.
The 10-year Treasury rate is the risk-free rate that the U.S. government is obligated to pay on debt, and it is considered one of the most secure assets in the world. As a result, its convergence with the 30-year fixed-rate mortgage rate bodes well for the economy. The diminishing spread further signifies lower risk assumed on the part of investors.
As shown above, the average spread in September and the first week of October was about 222 basis points. Additionally, the pre-pandemic range of the spread for the last five years was between 150 and 200 basis points. When Treasuries increased 8 basis points at the beginning of the current week to 0.78%, it was due to investors’ anticipation of a breakthrough on an additional government stimulus package for the current public health crisis.