The prices always fall, and Wall Street seems increasingly confident that they will remain low for years. However, it is not the Federal Reserve that it cut – it is the bond market. The kneeling soft economy has investors press for United States Treasury securities, the prices and yields driven down.
The stampede into bonds is to lower the prices on things as varied as mortgage and business loans. The two-year Treasury rate fell to a record low on Friday, shortly edges below 0.5%. Thirty-year fixed mortgages have fallen below 4.5% – another record. And with clouds on the economic recovery, the Fed will likely keep its key interest rate near zero in the week.
All this is good news for the people to borrow money, but bad for the storage in bank deposits and money market funds. The average one-year certificate of deposit now pays 1.3% per year. Such meager returns are especially painful for people with fixed incomes.
But probably higher prices soon, say economists. In fact, they could fall even further. While the Fed may not lower its official federal funds rate much more – the rate at 0.25% throughout the year – it can ease the credit otherwise been glued.