Mortgage rates dropped sharply this week as jittery investors sent U.S. Treasury bond yields down to near their lowest levels since the 1950s, a survey released yesterday showed. Stocks also slumped yesterday to their lowest point in five months, in part on weak economic data and increased speculation that the United States will soon attack Iraq.
Mortgage rates, which hit a new low of 5.67 percent for 30-year loans, continue to fall because Treasury bond yields are falling. An eight-day rally in the bond market, which ended yesterday, pushed yields to within one-tenth of a percentage point of a 45-year low.
The eight days of bond price gains -- the longest stretch in almost three years -- came as investors rushed to the safest investments.
"People are worried," said Robert W. Bissell, president of Wells Capital Management in Los Angeles.
"Every time the administration is asked direct questions about what's the worst-case scenario, what could go wrong, the questions are ducked and the answers are 'it's unknowable.' That's about as uncertain as you can get."
Worry about probable war and higher-than-expected jobless claims -- the highest level of the year -- pushed investors to dump stocks.
The Dow Jones industrial average sank 101.61 points, ending the day at 7673.99, a five-month low. The jobless claims marked the third week in a row that layoffs increased. Analysts had been expecting them to decline.
U.S. officials said they would seek war powers from the United Nations as soon as next week.
Hans Blix, the United Nations' chief arms inspector, is due to report to the U.N. Security Council today on the extent of Iraq's compliance with disarmament demands. The markets were also reacting in advance of President Bush's White House news conference last night.
Housing, however, was a bright spot, as it has been consistently during this period of economic weakness.
Average interest rates on 30-year mortgages fell to 5.67 percent for the week ending today, the lowest level since record-keeping began, according to a survey by secondary-mortgage company Freddie Mac.
It was a steep drop from the previous week's 5.79 percent, which was also a record. Rates on 15-year mortgages also reached a new low, 5.01 percent, down from 5.14 percent.
"Treasury bonds compete with mortgages and mortgage-backed securities," said Phil Colling, an economist at the Mortgage Bankers Association. "If Treasurys drop, you'll see a drop in interest rates."
The 10-year Treasury note yield yesterday rose 3 hundredths of a percentage point, to 3.66 percent, after falling during the eight-day market rally. Bond yields fall as prices rise.
After discounting for inflation of 2.6 percent, the 10-year note yields only 1.06 percent.
The rush to the bond market prompted analysts to speculate whether a bubble could be forming .
"All this interest in bonds will probably come back to bite investors," said Scott Wren, market strategist at A.G. Edwards. "Down the road, when the economy continues to expand, interest rates will go higher and these investors will lose a lot of money in bonds, too, just like they did in stocks."
* The Nasdaq composite index fell 11.51, or 0.9 percent, to 1302.89. The Standard & Poor's 500-stock index dropped 7.75, or 0.9 percent, to 822.10. The New York Stock Exchange composite index fell 47.73, to 4626.02; the American Stock Exchange index fell 1.62, to 827.02; and the Russell index of 2,000 small stocks fell 2.70, to 353.84.
* Declining issues outnumbered advancing ones by about 9 to 5 on the NYSE, where trading volume fell to 1.31 billion shares, from 1.37 billion on Wednesday. On the Nasdaq, decliners outnumbered advancers by 3 to 2 and volume totaled 1.25 billion shares, down from 1.33 billion.
* The dollar rose against the Japanese yen and fell against the euro. In late New York trading, a dollar bought 117.40 yen, up from 117.31 yen late Wednesday, and a euro bought $1.0974, up from $1.0973.
* Light, sweet crude oil for April delivery settled at $37 a barrel, up 37 cents, on the New York Mercantile Exchange.
* Gold for current delivery rose on the Commodity Exchange division of the New York Mercantile Exchange to $356.80 a troy ounce from $353.10 on Wednesday.