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Is the 10yr T-bill yield a good predictor of mortgage interest rates?

Mortgagewatch.com offers a T-bill yield calculation-chart on 5 minute increments.
Link
(or even on 1 minute increments).

Overlaying the curve from yesterday, onto the ZMM 30 yr average hourly quotes, with a 27/16% offset for the T-bill yield:



The "start" rise, and "peak" are all in the same magnitude, but the peak is 2 hours earlier.  Market watch claims their data is delayed 20 minutes, so apparently ZMM trails the bond and securities market by about 2.5 hours.

But look at the early morning hours!  About 7.5 hours prior to rate sheets being issued, the T-bill yields are already starting to move!

Can this be used for more effective decisions on locking or delaying locking, knowing how rates are going to be moving 2 hours to 8 hours before they actually move?

What are the risks of using such method?  (Yes, we know that there is no direct function between T-bill yields and mortgage rates, as MBS is a separate investment product and the Federal reserve has a separate buying policy for MBS as compared to T-bills; but the correlation on a daily to monthly time scale is still quite high).
  • July 25 2013 - US
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Answers (27)

Profile picture for blue screen exile
good predictor today, based on response to lower than consensus "new home sales" for July:







  • August 23 2013
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not a good predictor today:




  • August 19 2013
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Pasadenan, There is no "free" service to monitor this.  There are two pretty big companies that do this.  I probably can't post a link to them because Zillow will delete them.  One is RateAlert the other is MMG.  They have it converted to price so you can monitor exactly what is going on.  MMG is expensive but offers advice in a non-technical, easy to read and understand format.  RateAlert is what I use and is cheaper.  The advice given is very technical.  I use RateAlert because I don't need the commentary, just the price and tickers so i can analyze it myself and give my clients the best advice on whether to lock or float.
  • August 14 2013
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The offset for 10yr T-note yield to 30 yr fixed average quote is closer to 13/8% for August, rather than the 27/16% we saw for July...

Still a pretty good predictor, if one had the right offset.  Still too much swing in the T-note yield though.






  • August 14 2013
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Well Richy, do you know where to get the FNMA 4.0 yield data on 5 minute increments?  Do you have some "charts" for your predictions that you can post here, similar to the ones I posted?
  • August 06 2013
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Currently the best indicator is the FNMA 4.0% coupon but they do somewhat correlate to T-Bills

  • August 06 2013
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James, do you know any location I can get the YIELDS for the FNMA 3.5, on 5 minute update increments?  Sure, it can be converted from the "price", but that is much more work, especially if the data is not in a table format, but only a chart format.

If you don't know where I can get the yields, how about the prices in 5 minute update increments?  (or even 15 minute update increments?).
  • August 06 2013
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It is a "good" indicator but there is nothing better than monitoring the FannieMae Mortgage Backed Security bond chart (or FNMA MBS).  Currently the best coupon to monitor is the FMNA 3.5% coupon.  If rates continue to tick up... the FNMA 4% coupon will begin to be the best indicator.

The best thing someone can do to check whats going on with rates is call their loan officer.  If you are concerned that you are getting ripped off in rate, get a second opinion.

I would love to be that second opinion :-).
  • August 06 2013
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Fairly good predictor again today; but the economic news was probably a bit better predictor, if one knew how to interpret it:


  • August 02 2013
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Good predictor today:


  • August 01 2013
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Another large movement day, this time both up (from GDP announcement) and back down (from FED continued buying announcement).  Chart again shows "good prediction" possibilities.  But directly interpreting the news that moved the markets would likely have been a better predictor, if one is good at such interpretations.



  • July 31 2013
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It wasn't a good "predictor" yesterday; Treasury yields up, stocks down, ZMM average mortgage quote rates flat:


  • July 30 2013
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Thank you Wayne for your confirmation of what I'm seeing, from your experience.

As far as my charts not being for amateurs, I'm hoping they are easy enough to read and interpret for amateurs.  If one has trouble reading the text; right click on the image and choose "view image" to see it full size.

If there is any difficulty interpreting something on the charts; ask and I'll be happy to explain it.  I realize I provided no legend key on this chart.

Light Blue bars - closed market hours, Zillow Hourly Quote volume for specified loan criterion (also between $200k and $416k loan values).

Purple bars - mortgage business hours Zillow Hourly Quote volume (for specified loan criterion)

Date & Time at bottom -  Pacific time, end of the hour of data

Magenta line graph - ZMM 30 yr fixed quote, hourly average (for specified loan criterion) ("smoothed" with a spline function)

Blue lines - 1/16% increments (considering loan rates are quoted in 1/8% increments and the difference is made up in fee or credit changes).

Pale Orange graph line - 10 yr T-Note yield from Marketwatch.com on 5 minute intervals, candle-stick style - thus max and min vertical lines for each 5 minute interval, offset 27/16% for comparison to average ZMM 30 yr fixed quote rates.  (27/16% "works" for July 2013, but would need to be a different number for a different month)

Orange horizontal line, and black text above it - ZMM 30 yr fixed quote average for the day.  (Rather than using Zillow's number that has 2 decimal places accuracy, it is a weighted average of the hourly quotes, to get one additional digit of accuracy, for better comparison of similar rate days, and to see finer movement on the monthly charts).
  • July 26 2013
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Over the years I have virtually never been surprised by the market movement, as I constantly monitor the 10 yr T bond.  The movement obviously is not always predictible like what occurred in June, but you know what is coming on a daily basis. When I did sign up to receive market "alerts" in the past, I already knew their recommendation from watching T bond movement.  MBS are more exact but tracking t bonds is easier. 
Pasadenan's - your charts are not for us amateur's!
  • July 26 2013
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Ah, yes maybe it could be intercepted by fellow LOs. They would want the Crystal Ball perhaps more than me :)
  • July 25 2013
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Fed-Ex, Priority, or UPS?  Are you paying the shipping charges, or are you asking me to donate that too?  Will the people at 1st advantage make sure you get it without intercepting it or breaking it?

(I would normally charge $10 to $20 plus shipping; but I'm not in the habit of selling anything).
  • July 25 2013
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Please send one. Thanks.
  • July 25 2013
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"If I owned one, I would be cruising the world." -

I own lots, but I fail to see why one would want to cruse the world if they owned one.

If you "need" one in order to do what you want (assuming that "cruising the world" is "what you want" considering that most people consider that more exhausting then beneficial), I would be happy to provide you one.

And I've always said, if you want to constantly "cruise the world", then why not work on a cruise ship rather than doing what you are doing?
  • July 25 2013
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Yes, the mortgage daily news MBS costs charts are frequently posted on the thread:
Rates on the Move Again

And there is a high correlation of both the FNMA 3.5 and FNMA 3.0 to the ZMM 30 yr fixed quote hourly and daily averages.  But as already mentioned, it is a bit more work and trickier to convert that to yield, and then to assign an appropriate offset of the yield for predicting rates.

And yes, I really do know the different between
Treasury Bill (up to 1 yr)
Treasury Notes (2 yrs to 10 yrs)
Treasury Bonds (20 yrs to 30 yrs)

US Treasury-Securities - Wikipedia

But as far as I'm concerned, it really doesn't matter what you call a loan to the federal government, as long as it is clear what the time frame is and what the terms are.

  • July 25 2013
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Actually, the 10 year is a NOTE and NOT a T Bill.

It is indirectly related to mortgage rates, but it is a common index that industry professionals track as a way to monitor activity on whether investors are flying into or out of them as an investment. When investors drop them, the 10 year NOTE usually goes down.

Mortgage Backed Securities are the most relevant indicator of mortgage rates to follow, and there are many consumer friendly sites to use when you want to track them. One of the better ones is www.mortgagenewsdaily.com.
  • July 25 2013
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I surely don't listen to R/E Agents and their need for the Crystal Ball. If I owned one, I would be cruising the world. I gave up watching the minutia a few years ago and now I go with "Close Only Counts In Horseshoes and Hand Grenades."  I subscribe to one service that just brings everything down to basics. Best move I ever made. Just sayin'
  • July 25 2013
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Certainly the bloomberg economic calendar is helpful in that regard, as well as several other economic indicators.  It does require some interpretation, but it usually will give one about a 3 hour advance on movement and direction.  It certainly takes quite a bit more experience and practice to estimate the magnitude of the movement though.
  • July 25 2013
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10 yr TBill is a good indicator. But a great indicator is Ben Bernake the Chairman of the Federal Reserve. Anytime he holds a press conference rates either rise dramatically or drop dramatically. Be very aware when he is going to hold a presser.
  • July 25 2013
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I'm thinking that the yield on a FNMA 3.5 security updated every 5 minutes might be a bit better... but I have found no source for such data yet.  But it is not that hard to convert security pricing to yield.  Trouble is, I find no easy location to download the numbers in bulk for the calculations, nor any way to easily automate it without violating website terms of use, and keeping machines on line that shouldn't be.

I'm really not interested in having a loan officer that isn't watching economic indicators trying to anticipate for their clients which way rates and terms are heading, to lock in better deals for their clients.

We keep hearing that Realtors complain that they don't have any crystal balls... but there are substantially better forecasting methods and tools than crystal balls.  Anyone that doesn't look at forecasting data that is available for their industry is probably short-sighted.
  • July 25 2013
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I'm a Simpleton and use the 10 yr all the time. Remember 1.9-ish not so long ago? Sniff :<
  • July 25 2013
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Is there a better predictor in the overall scheme of things?

  • July 25 2013
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I think you have over thought this thing.  Yes, the 10 year treasury is a good indicator, but only an indicator. Lenders vary when they adjust their rates. I can get a notice that one lender is adjusting and then other lenders might adjust 2 hours later, or not at all. And, it seems to be there are more adjustments on Fridays as lenders try to protect themselves over the weekend. And, if you are concerned as a mortgagor, sometimes even if the rate adjusts to the mortgage company, the mortgage company may absorb the change if you have already agreed to a lock.  There are too many variables for each company for you to totally figure it out exactly. 

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  • July 25 2013
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