7% Level Pierced on Mortgage Rates : Markets: Fixed 30-year loans at lowest level in 25 years as T-bond yields hit new low of 6.08%. But stocks take a breather.
The amazing interest rate slide of ’93 brought new cheer to homeowners Thursday as average rates on 30-year, fixed-rate mortgages fell below 7% for the first time since Lyndon B. Johnson’s presidency.
Meanwhile, the bond market rally that has pushed mortgage rates down continued to gain steam Thursday, promising even lower rates ahead for home buyers.
The yield on the Treasury’s 30-year bond tumbled to 6.08% from 6.16% on Wednesday, marking yet another historic low for the benchmark bond. The yield was at 6.55% as recently as Aug. 2.
In the mortgage market, the Federal Home Loan Mortgage Corp. reported that the average rate on long-term, fixed-rate mortgages fell to 6.97% this week, down from 7.10% the previous week and the lowest since 1968.
The average on 15-year, fixed-rate mortgages--which have gained popularity as yields have plunged--was a record low of 6.49%, down from 6.62% last week.
“Rates are lower now than they’ve been in 25 years because the economy is weak and inflation is low,” said Freddie Mac economist Robert Van Order.
The renewed slide in mortgage rates is reviving interest in new-home purchases and in refinancings of existing loans, developments that could help spur the sluggish economy in California and nationwide, experts said.
Bond analysts have been astounded by the plunge in yields this month, and the acceleration of the slide in recent days has the earmarks of a buying frenzy, traders say.
While T-bond yields are at the lowest levels in a generation, those returns are still far more attractive than the 2% to 3% rates on shorter-term investments, experts note. So cash continues to pour into long-term bonds, putting further downward pressure on yields.
Lately, Treasury bonds also are benefiting from a tide of new money that is flowing out of mortgage-backed bonds. As more homeowners refinance their mortgages, the ultimate owners of those mortgages--investors who bought bonds backed by the loans--get their principal back far earlier than expected.
Many of those investors are putting the returned money into Treasury bonds to avoid facing the same fate on new mortgage-backed bonds, traders say.
What’s more, the decline in yields is causing more investors to panic, fearing they will never see rates this high again, said Elliott Platt, economist at Donaldson, Lufkin & Jenrette Securities Corp.
“What’s happening is all these people who perceive themselves as under-invested (in bonds) are racing into the market,” he said.
That could push the 30-year T-bond yield below 6% as early as today, some traders believe.
U.S. bond investors ignored news Thursday that the Bundesbank, Germany’s central bank, refused to cut interest rates, as some analysts expected.
The Bundesbank met for the first time since the European currency crisis in late July, and European financial markets were hoping for a sign that Germany is willing to accelerate interest-rate cuts to help pull the Continent out of recession.
Other Markets
Stocks closed mixed as some blue-chip indexes rose while smaller stocks were hurt by a new selloff in technology issues.
The Dow Jones industrials eased 3.91 points to 3,648.18, but the Standard & Poor’s 500 index rose to a record high of 461.04, up 0.91 point. The NYSE composite index also advanced to a record.
The NASDAQ market was hit as software stocks plummeted on new worries about price competition. The NASDAQ composite index lost 2.27 points to 731.39.
Still, outside technology, analysts said the bull market’s surge appears intact as buyers still dominate sellers.
Among the market highlights:
* Software stocks falling on competition worries included Oracle Systems, down 4 3/8 to 50 3/8, and Sybase, off 6 to 60. Analysts noted that both have been high-fliers this year, and were vulnerable to profit taking.
* Also in the tech area, computer networker Novell tumbled 2 1/8 to 19 1/8 after reporting disappointing quarterly earnings. Among its rivals, Cisco Systems shed 2 5/8 to 50 3/8, Cabletron Systems sank 5 to 106 5/8 and Synoptics lost 1 1/8 to 29 1/8.
* On the upside, oil stocks continued to provide a spark for the market. Chevron rose 1 to 92 7/8, Royal Dutch gained 1 1/8 to 100 7/8 and Mobil rose 5/8 to 78 1/2.
Overseas, stocks lost ground in Frankfurt but rose in Paris, while in London the FTSE-100 was unchanged at 3,079.2. In Tokyo, the Nikkei index added 70.31 points to 20,591.76.
In Mexico City, the Bolsa index jumped to a record high 1,941.36, up 23.22 points.
In other markets:
* Gold absorbed a heavy selloff by speculators and fell to two-month lows on reports of easing demand. Gold futures fell $4.50 to $368 an ounce on New York’s Comex.
* The dollar fell against most currencies after the Bundesbank surprised dealers by leaving German rates unchanged. The dollar sank to a nine-week low of 1.666 German marks in New York from 1.685 on Wednesday.
Market Roundup, D6
