by Calculated Risk on 5/27/2009 02:30:00 PM

With the Ten Year Treasury yield hitting 3.7% today, mortgage rates will be increasing.

Click on graph for larger image in new window.

This graph shows the relationship between the Ten Year yield (x-axis) and the 30 year mortgage rate (y-axis, monthly from Freddie Mac) since 1971. The relationship isn't perfect, but the correlation is very high.

Based on this historical data, a Ten Year yield at 3.7% suggests a 30 year mortgage rate of around 5.6%.

The second graph compares the weekly 30 year fixed rate conforming rate from Freddie Mac, and the 10 year treasury yield. The black line is the spread between the two rates.

As the Ten Year yield increased earlier this year, the spread decreased, and mortgage rates only moved up slightly.

However the spread has reached the lower end of the range, and the recent increase in the Ten Year yield will push up mortgage rates.