The 30-year U.S. Treasury bond, or "long bond," yield is often viewed as a benchmark for tracking mortgage rate movements. Many people believe that if they follow changes in the long bond they will know how mortgage rates are changing. In reality, the supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) differ significantly.

Treasury securities represent money needed to fund the operations of the U.S. government. Because the federal deficit exceeds six trillion dollars, major refunding auctions are held quarterly and semi-annually. MBSs represent borrowing by homeowners. Demand for mortgage credit is seasonal and is also affected by economic conditions.

Treasury securities are regarded as "risk free" and often benefit from a "flight to quality" in times of financial crisis. MBSs too are low-risk as they benefit from guarantees by quasi-governmental agencies (Ginnie Mae, Fannie Mae and Freddie Mac). However, because homeowners can sell or refinance their homes, investors in 30-year MBSs usually see principal repayment in significantly shorter periods of time. MBS investors expect 30-year notes to be returned within 8 to 12 years and hence compare MBS yields with 10-year Treasury notes.

For a free consultation to discuss which type of mortgage loan will work best for you, call Victoria Spannaus at Wachovia Mortgage Corp. at (800) 741-7813 or 910-692-6225.