More Flight to Quality

The yield on the 10-year note fell again today after a relatively benign inflation report. That should be good for mortgage rates, which are priced off of the 10-year treasury. The 10-year yield has been falling for about a month now and many have said it is because hedge funds are unwinding loosing positions in GM derivatives and buying safer treasuries. If this “flight to quality” is what is holding up prices on the 10-year note, then it should only be unique to that bond (or maybe other treasuries). Consequently, spreads on other bonds should eventually widen to the treasury, including mortgages.