Why Mortgage Rates Exceed Treasury Yields

Paul Willen

No 26-3, Current Policy Perspectives from Federal Reserve Bank of Boston

Abstract: The mortgage spread—the gap between the 30-year fixed mortgage rate and the yield on 10-year U.S. Treasury notes—is currently about 200 basis points, or 2 percentage points. Mortgages and Treasury securities have different cash flows, credit risk, and lender intermediation margins, but even after those differences are accounted for, a large and volatile gap remains. In this brief, the author argues that this remaining gap largely reflects the price of the mortgage prepayment option—a borrower’s right to pay off their mortgage at any time without incurring a penalty.

Keywords: mortgage rate; mortgage-backed securities; Treasury yields; prepayment; yield curve (search for similar items in EconPapers)
JEL-codes: E43 G21 (search for similar items in EconPapers)
Pages: 7
Date: 2026-05-19
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bostonfed.org/publications/current-pol ... treasury-yields.aspx Summary (text/html)
https://www.bostonfed.org/-/media/Documents/Workin ... 2026/cpp20260519.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbcq:103270

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Current Policy Perspectives from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().