Mortgage Rates are Spiking and So is the Spread vs 10-Year Treasuries

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by Mish Shedlock, Mish Talk:

There is no particular mortgage rate at which recessions tend to start. Curiously, there is a spread between mortgage rates and treasury notes that seems to matter.

The above chart caught my eye as I was mapping mortgage rates.

The last two recessions started when the spread between the 30-year mortgage rate and the 10-year treasury yield topped two percentage points.

“Is this a long term pattern?” I wondered. And here is the answer.

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30-year mortgage Rate Minus 10-Year Treasury Yield 

30-year mortgage Rate Minus 10-Year Treasury Yield via St. Louis Fed, Chart by Mish

30-year mortgage Rate Minus 10-Year Treasury Yield via St. Louis Fed, Chart by Mish

The normal spread between the 30-year mortgage rate and the 10-year treasury yield is one to two percentage points.

I am not quite sure what to make of this relationship other than to note that six of the last seven recessions began shortly after the spread exceeded two points. There were also some false signals.

We are now in the danger zone with spreads rising faster than the yield on the 10-year note.

30-Year Mortgage Rates 

Mortgage rates courtesy of Mortgage News Daily

Mortgage rates courtesy of Mortgage News Daily

Rate and Spread Notes

  • Rates from Mortgage News Daily (MND) are more timely than the weekly rates posted by the St. Louis Fed.
  • As of March 24, 2022 the average 30-year mortgage rate is 4.71%. The yield on the 10-year note is 2.37%.
  • The current spread is 2.34 percentage points, easily into the spread danger zone shown in the second chart.

Housing Slowdown

On March 18, I commented “Mortgage rates are up, sales are down big. Get used to this story.”

Housing started slowing even before mortgage rates jumped. New home sales are recorded at contract signing. Existing home sales are recorded at closing.

The existing home sales in February locked in at rates in December or January. According to MND, the rate on January 3 was 3.29%. The rate today is 4.71%.

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