Determinants of Mortgage Interest Rates: Treasuries versus Swaps

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


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.


Treasury rate Mortgage rate determinants Swap derivatives LIBOR swap rate 


  1. Allen, M. T., Rutherford, R. C., & Wiley, M. K. (1999). The relationships between mortgage rates and capital–market rates under alternative market conditions. Journal of Real Estate Finance and Economics, 19, 211–221.CrossRefGoogle Scholar
  2. Bhattacharya, A. K., Sekhar, A., & Fabozzi, F. J. (2006). Incorporating the dynamic link between mortgage and treasury markets in pricing and hedging MBS. Journal of Fixed Income, 16, 39–45.CrossRefGoogle Scholar
  3. Devaney, M., Pickerill, K., & Krause, F. (1992). Cointegration and causal relations in mortgage and capital markets. Journal of Financial Services Research, 5, 341–353.CrossRefGoogle Scholar
  4. Feldhutter, P., & Lando, D. (2008). Decomposing swap spreads. Journal of Financial Economics, 88, 375–405.CrossRefGoogle Scholar
  5. Goodman, L. S., & Ho, J. (1997). Modeling the mortgage-treasury spread. Journal of Fixed Income, 7, 85–91.CrossRefGoogle Scholar
  6. Goodman, L. S., & Ho, J. (1998). A LIBOR-based approach to modeling the mortgage basis. Journal of Fixed Income, 8, 29–35.CrossRefGoogle Scholar
  7. Guttentag, J. M., & Beck, M. (1970). New series on home mortgage yields since 1951. New York: Columbia University Press for NBER.Google Scholar
  8. Haney, R. L., Jr. (1988). Sticky mortgage rates: Some empirical evidence. Journal of Real Estate Research, 3, 61–73.Google Scholar
  9. Haubrich, J. G. (2001). Swaps and the swaps yield curve. Federal Reserve Bank of Cleveland: Economic Commentary.Google Scholar
  10. Hendershott, P. H., Shilling, J. D., & Villani, K. E. (1983). Measurement of the spreads between yields on various mortgage contracts and treasury securities. Real Estate Economics, 11, 476–490.CrossRefGoogle Scholar
  11. Klaman, S. B. (1961). The postwar residential mortgage market. Princeton: Princeton University Press for NBER.Google Scholar
  12. Koutmos, G. (2002). Modeling the dynamics of MBS spreads. Journal of Fixed Income, 12, 43–49.CrossRefGoogle Scholar
  13. Nippani, S., & Smith, S. D. (2010). The increasing default risk of U.S. treasury securities due to the financial crisis. Journal of Banking and Finance, 34, 2472–2480.CrossRefGoogle Scholar
  14. Nippani, S., & Smith, S. D. (2012). Analyzing the changing term structure and expectations of U.S. treasury default risk. Journal of Fixed Income, 22(1), 52–60.Google Scholar
  15. Pouyan, M. A. (2009). The structural change in mortgage-treasury spreads during the credit crunch. Journal of Fixed Income, 18, 47–51.CrossRefGoogle Scholar
  16. Ramchander, S., Simpson, M. W., & Webb, J. R. (2003). Macroeconomic news and mortgage rates. Journal of Real Estate Finance and Economics, 27, 355–377.CrossRefGoogle Scholar
  17. Roth, H. L. (1988). Volatile mortgage rates—A new fact of life? Economic Review, 16–28.Google Scholar
  18. Rothberg, J. P., Nothaft, F. E., & Gabriel, S. A. (1989). On the determinants of yield spreads between mortgage pass-through and treasury securities. Journal of Real Estate Finance and Economics, 2, 301–315.CrossRefGoogle Scholar
  19. Sa-Aadu, J., Shilling, J. D., & Wang, G. H. K. (2000). A test of integration and co-integration of commercial mortgage rates. Journal of Financial Services Research, 18, 45–61.CrossRefGoogle Scholar
  20. Taibbi, M. Everything is rigged: The biggest price-fixing scandal ever., April 25, 2013,
  21. Wooldridge, P. D. (2001). The emergence of new benchmark yield curves. BIS Quarterly Review, 48–57.Google Scholar

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

Personalised recommendations