Mar182012

Mortgage interest rates bottomed in early 2012

Treasurys plunge as traders, Fed bet on economic strength; mortgage rates may creep up

By Associated Press, Published: March 14

WASHINGTON — The bond market is betting on a stronger economy.

Prices for U.S. Treasury debt plunged for the fifth straight trading session Wednesday, and the yield on the benchmark 10-year note spiked to its highest level since October.

Money poured out of bonds and into stocks after rosy words on Tuesday from the Federal Reserve gave traders confidence that the economic recovery is strengthening. Major stock market averages are at or near four-year highs.

Treasury yields — and interest rates that take their cues from Treasury yields, including mortgage rates — remain near all-time lows. So while mortgage rates may creep up, they should remain historically low.

Even with the economy getting stronger, the Fed plans to keep short-term interest rates near zero through 2014. And demand is strong for long-term Treasurys because the dollar and the U.S. government still look like safer bets than the euro and other nations.

More evidence of the hunger for U.S. debt came Wednesday afternoon, when the Treasury Department auctioned $13 billion in 30-year bonds. Bids came in higher than current market prices.

The bonds were priced to yield 3.38 percent. Similar bonds trading on the open market fetched a yield of 3.41 percent.

The yield on the 10-year Treasury note was 2.27 percent as of 4 p.m. Eastern time Wednesday. It hasn’t closed above that level since Oct. 28, but the yield is far lower than the 3.36 percent level where it settled a year earlier.

Prices rose and yields fell for U.S. government debt almost all last year. Investors were willing to pay for the safety of U.S. debt because other investments, like volatile stocks and the euro, seemed much riskier at the time than they are today.

The interest rates that Americans and businesses pay on mortgages and other loans tend to track the 10-year note, and rising yields should make the interest rates on those loans increase.

With the spring home-buying season about to start, the average interest rate on the most popular mortgage loan, the 30-year fixed, fell last week to 3.88 percent, a hair above the 3.87 percent it hit three weeks ago. That was the lowest since long-term mortgages were popularized in the 1950s. A year ago, the average was 4.88 percent.