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T-bond yields fall for a fourth day; mortgage rates follow

June 16, 2009 |  3:22 pm

U.S. Treasury bond yields continued to ease today from their recent peaks, putting more downward pressure on mortgage rates -- and reopening the door for some potential homebuyers and for homeowners hoping to refinance.

Treasury bonds attracted buyers as fresh worries about the economy helped trigger selling in the stock market for a second straight session. The Dow Jones industrial average lost 107.46 points, or 1.3%, to 8,504.67, bringing the two-day loss to 3.3%.

The 10-year T-note yield, a benchmark for home loan rates, fell to 3.66% from 3.71% on Monday. The yield has fallen for four straight trading days after reaching an eight-month high of 3.99% last Wednesday.

Fi-markets17 Thirty-year conventional mortgage rates nationwide were averaging about 5.55% today plus 0.33 of a point in upfront fees, said Keith Gumbinger, a principal at rate tracker HSH Associates in Pompton Plains, N.J. The loan rate average is down from a peak of 5.81% last week, he said.

Jeff Lazerson, head of in Laguna Niguel, was quoting a 5% rate for a conventional loan with 0.75 of a point.

Treasury bond yields had been rising for most of the spring as increasingly optimistic investors found better ideas for their money, including stocks. Yields spiked last week as the government sold $65 billion more in bonds to finance the federal deficit, leaving the market awash in securities.

But the jump in Treasury yields has been luring buyers who believe the economy is likely to continue to struggle, traders say.

The 10-year T-note yield could fall as low as 3.5% in the near term as investors rethink the economic and interest-rate outlooks, said Mike Kastner, head of fixed-income at Sterling Stamos Capital Management in New York.

Some bond investors are holding out hope that the Federal Reserve will announce new efforts to bring down long-term interest rates when policymakers meet June 24.

Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York, agreed that the 10-year T-note might slide to about 3.5% this month. But he figures that’s where it will stop, given the still-massive load of debt the Treasury has to sell this year.

"The only thing that could get it below 3.5% would be if the stock market collapses again," he said.

-- Tom Petruno