The 10 Year Gained in a Flight to Quality.

The Wall Street Journal (Subscription only)

“NEW YORK -- Building on solid gains garnered throughout the week, Treasuries shot higher Friday morning as concerns about hedge-fund problems continued to feed flight-to-quality flows into government securities.

Yield on the 10-year note broke below 4.13% for the first time since Feb. 16, when Federal Reserve Chairman Alan Greenspan made his now infamous "conundrum" comment about the persistence of low long rates. Yields move inversely to prices.

The buying also forced bearish investors to cover their positions by buying government securities since falling yields wreak havoc on their short positions, which only benefit when rates rise….”

It is quite a conundrum that mortgage rates, which are priced off the 10 year, have remained relatively low because fear is forcing people to buy 10 year treasury bonds. It really doesn’t make sense. If there is a flight to quality going on, then there should be a flight out of riskier assets, like mortgage loans.