Treasury Yields Drop as Investors Rush to Bonds

Buyers continued to pour into the U.S. Treasury market Tuesday, sending yields on key securities to record or near-record lows.

That’s encouraging news for homeowners still waiting to refinance a mortgage.

Treasury yields fell for the fifth consecutive session after a report showed that U.S. consumer confidence plunged in October.

Other data due out this week also are expected to show the economy in danger of falling into recession, if one hasn’t already begun.

“Everywhere people look, there’s bad news: The economy is shrinking, the [federal] budget is deteriorating and there might be other terrorist attacks,” said John Poole, who manages $10 billion at Mellon Private Asset Management in Boston. “In such an environment, [investors] will stick with Treasuries.”

Demand for Treasuries on Tuesday pushed the yield on the 10-year T-note to a new three-year low of 4.41%, down from 4.48% on Monday. That eclipsed the low of 4.47% reached Oct. 3.

The 10-year T-note is a benchmark for mortgage rates. Thus, home loan rates could fall further in the near term, analysts say.

Last week, mortgage giant Freddie Mac said its average 30-year loan rate was 6.64%. That had inched up from the 52-week low of 6.58% two weeks earlier.

Shorter-term Treasury yields also fell sharply Tuesday. The yield on the two-year T-note dropped to a 40-year low of 2.45% from 2.56% on Monday.

The yield on the six-month T-bill fell to its lowest ever, at 1.99%, down from 2.05% Monday.

Amid recession fears, many bond investors are confident the Federal Reserve will cut the target for its key short-term interest rate--the “federal funds” rate--by half a point, to 2%, when policymakers meet Tuesday. That would be the 10th rate cut this year.

But analysts warned that the market will closely watch today’s Treasury announcement about the government’s quarterly financing plans. The Treasury also is expected to discuss its ongoing program of buying back debt.

The buyback program, hatched at a time of record budget surpluses, might need to be altered now that plunging tax receipts and a stepped-up program of tax relief and military spending are pointing toward a return to federal deficit spending, experts said.