How does bond yied translate to mortgage rate

ctent,
I would not be looking at the 30 year bond. If anything the 10 year bond or 10 year swap is better.

But what the Fed and the professionals keep their eye on most is the "current coupon" and the Fannie/Freddie comittment rates. The former is an "average" of the TBA's trading under and over par, the latter is what the GSE'S will buy a mortgage for.

You'll need to add a spread to either, but it gives you a better indication of whether mortgage rates are headed up or down. The problem with looking at the 30 year treasury, is first the duration mismatch to mortgages(usually 8-12 years) and second spreads).
And mortgages trade at a premium to treasuries, because the investor is not quite sure when he's getting his money back, as the assumed rate of PRE-PAYMENT can increase or decrease. A 30 year mortgage on average, is paid back in less than half the time.

"I would not be looking at the 30 year bond. If anything the 10 year bond or 10 year swap is better."

I agree with this statement. However, in reality, your 30yr rates are set through trading of FNMA 30YR securities markets. That is, the price of mortgage bonds. Since this gets a bit more complicated (how often do the regular folks check the mortgage bond markets?), the 10yr Treasury Yield is generally a good 'indicator' of where lending rates are trending. The problem arises when CREDIT GETS WHACKY! Which it did in 2007-2009. Thats when treasury yields and mortgage yields went different directions for a while and were not related.

Here is a good article on the topic from my old friend Dan Green:

http://themortgagereports.com/521/how-can-you-han

I think you wanna look at constant maturity treasuries

forgot the last part, sorry.

The reason its not real time and 1:1, is because a) your using 30yr bond, when 10yr bond is likely more related and b) your using treasury market, not mortgage bond market to track the mortgage bond market.

I find that in normal times, with credit not blowing out, that mortgage bonds follow the 10yr bond by about 3-5 days or so..NOT intraday. So a clear trend needs to happen before you see follow through in lending rates. Again, as long as credit is not blowing out!

Gotta hop in here....

My own eprsonal favorit is mortgagenewsdaily.com (specifically MBS commentary). They are authority on translating the secondary market into your consumer rate. Basically, as noah's alluded too, higher secondary MBS prices (not yields) for particular coupons translate into lower consumer rates. Example: if the 4.5 is par or above (depending upon how far above), you should see sub-5 rates (for conforming loans and best borrowers). So check out some of the pricing mortgagenewsdaily displayed today and you'll see the 4.0 coupon is well-below par and thus the low 4's consumer rates we saw pre- Dec. '10 are no more. He'll also juxtapose above pricing with 10yr pricing too....

http://www.mortgagenewsdaily.com/mortgage_rates/blog/198286.aspx

Sign up for their daily email and set them up in your reader (next to Udigs), and you'll have a bead on rates about a week BEFORE most of the surveys come out (just like how Udigs' new system can show you activity way in advance of the stale market reports).

The mortgage game is as opaque as they come. Mortgagenewsdaily definitely helps.

also, in looking at Udigs' link, I like the '07 numbers:)

"FNMA 6.000% 30-year moves from $100.34 to $100.36 in a day. We tend to ignore what we don't understand -- it's human nature.

By contrast, it's not tough to figure out what happened when the 10-year treasury note drops from 4.27% to 4.23%"

The secondary markets are crapping their pants over a 10YR that's touching 3.6%:) And imagine that it was in mid-to-high 2's last Nov. How times have changed.

https://personal.vanguard.com/us/FundsBondsMarketSummaryTable

I check this site for lending rate trends...30YR FNMA yield under the US Govt Agency Section

Urban, I'm surprised you haven't agreed with looking at the implied current coupon off of TBA's. While you may have some minor noise this is very good at implying future mortgage rates. After all, mortgages get sold and delivered against TBA'S so the prices are very important predictors.

Thanks all for the replies this helps out a bit more and shows how complex it is. Thanks for all the links too.