Stupid question on mortgage rates

I must have fell asleep in class but can anyone explain why the 10 year treasury rates has such an strong influence on mortgage rates? I understand that banks etc want to match assets and liabilities. But why choose the 10 year over the 30 year. Does it have to do with duration? I’m thinking about this in the context of the Fed’s statement yesterday about buying longer term treasuries and how this will impact mortgage rates.

30-year mortgages are almost always paid back early and they are amortizing. Duration is much more similar to 10 -year T-note than 30-yr bond.

Gotcha - that definitely makes sense. Thanks! Just curious, what is the duration ona typical 30 year mortgage. I know it depends on the pre-pay assumptions, pre-payment burnout etc., but ballpark are we talking 5? 8? 12?

I’ll bet 8 but it depends on current interest rates and the rate of the mortgage for refinancing (unlike a Treasury which depends only on coupon rate and bond price).

Also notice 30yr is in perpetual short supply (which is why the 30y T yield is often less than the 25y yield) due to demand by life insurers.

DarienHacker Wrote: ------------------------------------------------------- > Also notice 30yr is in perpetual short supply > (which is why the 30y T yield is often less than > the 25y yield) due to demand by life insurers. are you saying (edit: not staying) that there’s a perpetual kink in the yield curve at the 25 yr through 30 yr mark? never thought of it that way… but sounds reasonable.