Relationship between treasury notes mortgage rates

What is the relationship between treasury notes mortgage rates? To answer this we have to understand Treasury notes. Treasury notes affect the interest rates directly. When Treasury yields are higher the interest rates will be too.

Investors who want fixed return rates on their money will usually shop for CDs, money market funds and Treasury notes. These treasury notes are usually the safest bet due to their US government guarantee. Since they are the safest, they have a disadvantage; a low return rate.

If investors want a higher return rate and accept a slightly higher risk, they will buy mortgage backed securities. When Treasury yields rise, mortgages will provide a higher return rate in order to attract new investors. The result is a higher interest rate.

That is the relationship between Treasury notes and mortgage rates.

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