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Low Mortgage Rates Defy Expectations
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Low yields on the 10-year Treasury "reflect the general view that growth in prices will remain benign over the coming decade," Decker said.
Much of the demand comes from a global glut of savings relative to investment opportunities, according to Fed board member Ben S. Bernanke. Asian central banks that have trade surpluses with the United States and have pegged their currencies to the dollar, for example, have vast supplies of dollars that they invest in U.S. assets -- including Treasury securities of different durations.
Meanwhile, pension funds and insurers from all over the world have large amounts of retirement savings to invest on behalf of aging populations. Many such investors want to avoid the risks of the stock market or real estate. In some countries, they have recently come under regulatory pressure to match their long-term liabilities with long-term investments -- prompting a shift to bonds with durations of 10 years or more.
The Bush administration in January proposed legislation to bolster pension fund financing. Many fund managers and investors have already started moving money out of stocks and into long-term government bonds in anticipation of the bill's passage in some form, analysts said.
"We see capital flows coming tsunami-style out of Asian central banks and international pension funds located in Europe, the U.S.A. and Asian centers" said Alessandro Giraudo, chief economist of Tradition Ltd., a brokerage firm based in Paris.
Even with the headwinds pushing rates lower, Freddie Mac still forecasts that mortgage rates will rise slowly this year, with the average 30-year fixed rate reaching about 6 percent by year's end, Nothaft said.
Most of the Wall Street analysts consulted by the Bond Market Association also predict that long-term yields, and mortgage rates, will creep up in the months ahead, Decker said.
"They've been saying that for some time, and it hasn't kicked in," he said.
