Determinants of Mortgage Interest Rates: Treasuries versus Swaps

  • C. Stace Sirmans
  • Stanley D. Smith
  • G. Stacy Sirmans
Article

Abstract

The 10-year Treasury rate has long been considered the primary determinant of 30-year mortgage interest rates. The contemporaneous 10-year LIBOR swap rate is shown to better explain the contemporaneous mortgage rate than the contemporaneous 10-year Treasury rate. This result appears to hold over most of the sample period, 1987–2011, using a variety of statistical tests. Given the long-held belief that the mortgage rate is best explained by the 10-year Treasury rate, this paper makes an important contribution to the literature by demonstrating that the swap rate is superior.

Keywords

Treasury rate Mortgage rate determinants Swap derivatives LIBOR swap rate 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • C. Stace Sirmans
    • 1
  • Stanley D. Smith
    • 2
  • G. Stacy Sirmans
    • 3
  1. 1.Department of Finance, Insurance, and Real Estate, College of BusinessUniversity of FloridaGainesvilleUSA
  2. 2.Department of Finance, College of BusinessUniversity of Central FloridaOrlandoUSA
  3. 3.Department of Insurance, Real Estate, and Legal Studies, College of BusinessThe Florida State UniversityTallahasseeUSA

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