What’s behind mortgage rates?

When there is an elevated level of demand for 10-year Treasury notes, investor bids for the notes would most likely come in at or above a bond’s face value. These higher offer prices for bonds drive bond yields down. This is so due to investors’ willingness to accept lower coupon rates for bonds in exchange for the de-facto loans they are making to the United States government by way of their purchase of 10-year Treasuries.

When investors determine that there is market volatility, investors may be inclined to accept lower yields on their “loans” to the United States government. An investor’s determination of a “volatile” market could lead the investor to arrive at their conclusion that government bonds are a safe place to park their money, as compared to other available investment vehicles they have available to select from (i.e.: the stock market).