Determinants of Mortgage Interest Rates: Treasuries versus Swaps

Posted: 6 Jan 2015

See all articles by Stace Sirmans

Stace Sirmans

Auburn University

Stanley D. Smith

University of Central Florida

G. Stacy Sirmans

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law

Date Written: January 5, 2015

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

Suggested Citation

Sirmans, Stace and Smith, Stanley D. and Sirmans, G. Stacy, Determinants of Mortgage Interest Rates: Treasuries versus Swaps (January 5, 2015). Journal of Real Estate Finance and Economics, Vol. 50, No. 1, 2015, Available at SSRN: https://ssrn.com/abstract=2545491

Stace Sirmans

Auburn University ( email )

Auburn, AL 36849
United States

HOME PAGE: http://www.stacesirmans.com

Stanley D. Smith

University of Central Florida ( email )

PO Box 161400
Orlando, FL 32816-1400
United States
407-823-6453 (Phone)

HOME PAGE: http://www.bus.ucf.edu/ssmith

G. Stacy Sirmans (Contact Author)

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law ( email )

College of Business
Tallahassee, FL 32306
United States
850-644-8214 (Phone)
850-644-4077 (Fax)

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