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Interest rates fall as GDP report confirms slowdown

July 30, 2010 | 12:36 pm

The Treasury bond market juggernaut rolls on: Interest rates are sliding again Friday after the government’s report on second-quarter economic growth showed a marked slowdown from the first quarter.

The economy’s 2.4% annualized real growth rate last quarter, down from a revised 3.7% rate in the first quarter, is cementing many bond investors’ expectations that the Federal Reserve won’t be raising short-term interest rates for a long time to come.

Some bond buyers also may be betting that the Fed will decide to resume its purchases of Treasury securities, a possibility raised by central bank policymakers who are worried about deflation in a weaker economy.

The yield on the two-year T-note has fallen to a record low of 0.55%, down from 0.58% on Thursday. The trend of the last few months shows how bond investors’ views have changed: The two-year T-note yield was  0.75% in mid-June and 1.05% in mid-April.

The 10-year T-note yield, a benchmark for mortgage rates, has slumped to 2.91%, down from 3% on Thursday. The yield is nearing the 15-month low of 2.88% reached July 21.

Bond buyers don’t seem deterred by other data reported Friday that suggest the economy is looking somewhat better in July. An index of business activity in the Chicago region rose to 62.3 this month from 59.1 in June, beating expectations. Any reading above 50 indicates expansion.

-- Tom Petruno