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Determinants of Mortgage Interest Rates: Treasuries versus Swaps


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.

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  1. 1.

    We choose this source over the interest rate swap provided by the Federal Reserve because the availability is greater. The swap rates from the two sources are nearly identical (the correlation between them is 0.9997). Our primary results are not qualitatively or quantitatively different using each swap rate.

  2. 2.

    For example, mortgage rates reported on Thursday are an average of the Monday to Wednesday rates of that week. In this case, we average the Treasury and swap rates over Monday to Wednesday. In results not shown, the Thursday rate is used rather than the Monday-Wednesday average, and the significance of the results presented in this study are not changed. The correlations between the Thursday rates and Monday-Wednesday average rates are 0.9955 and 0.9968 for the Treasury and swap rates, respectively.

  3. 3.

    We calculate the monthly payment on a 30-year FRM for $100 based on the provided rate in Freddie Mac’s Primary Mortgage Market Survey. Then we adjust the present value to reflect the $100 - (fees and points) and recalculate the effective interest rate.

  4. 4.

    An Augmented Dickey-Fuller unit root test (not shown, provided upon request) shows that the first differences are not autocorrelated.


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Correspondence to G. Stacy Sirmans.

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Sirmans, C.S., Smith, S.D. & Sirmans, G.S. Determinants of Mortgage Interest Rates: Treasuries versus Swaps. J Real Estate Finan Econ 50, 34–51 (2015).

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  • Treasury rate
  • Mortgage rate determinants
  • Swap derivatives
  • LIBOR swap rate