Are 3% yields the new 4%?

bonds, treasuries, treasurys, yieldsClick the chart for more on bonds. By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney) -- The yield on the benchmark 10-year note has had a rough 12 months. It started 2010 with a bang, opening at 3.85% in January and topping 4% in April.

A mere year later, the 10-year yield is struggling to stay above 3%. And experts say it's lucky to even be there.

"Bond buyers are not happy buyers right now," said Michael Cheah, bond fund manager at SunAmerica. "They're forced into it. Stocks and commodities are overweighted, and bonds are underweighted."

That division has widened sharply in the four months of 2011, Cheah said, as investors have split into two schools of thought: Buy commodities because massive inflation is coming, or snatch up bonds because inflation isn't a concern.

"The past few weeks' moves in the markets have been all about positioning one way or the other," Cheah said. "We haven't seen a flight to quality in bonds yet, though that might come if the stock market sells off into next week."

Meanwhile, the 10-year yield is slipping. It fell to 3.17% Thursday from 3.22%. But it would take a lot to break the 3% threshold, Cheah said, though that could turn out to be a positive move if it does happen.

"To break below 3%, we'd have to see strong evidence of a double dip," Cheah said. "But under 3% can be a good thing in and of itself."

The 10-year yield is tied to mortgage rates, so a dip could make housing more affordable. And hastening recovery in the housing market would greatly help the overall economy, Cheah noted.

Still, sub-3% yields don't offer investors much return on their money. But investors are prepared for that.

"Economics 101 would tell you the savers are being punished at that level," Cheah said. "But they'll do it, because it's not surprising to them. They're already punished by the Fed's easing measured. Overall, below 3% yields would create more benefit than harm."

What yields are doing: Also on Thursday, The 30-year yield ticked down to 4.28% from 4.33% the previous session. Bond prices and yields move in opposite directions.

The 2-year yield fell to 0.34%, and the 5-year yield slipped to 1.89%.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.92%3.97%
15 yr fixed3.00%3.08%
5/1 ARM3.48%3.44%
30 yr refi3.99%4.02%
15 yr refi3.10%3.16%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 18,132.70 -81.72 -0.45%
Nasdaq 4,963.53 -24.36 -0.49%
S&P 500 2,104.50 -6.24 -0.30%
Treasuries 2.00 -0.01 -0.69%
Data as of 7:34pm ET
Company Price Change % Change
Bank of America Corp... 15.81 -0.23 -1.43%
Apple Inc 128.46 -1.95 -1.50%
General Electric Co 25.99 0.10 0.39%
Microsoft Corp 43.85 -0.20 -0.47%
Chesapeake Energy Co... 16.68 -0.52 -3.02%
Data as of 4:06pm ET

Sections

Benmosche sparked controversy and criticism during his five years running AIG, but oversaw turnaround that resulted in taxpayer profit on bailout. More

Potential presidential candidate says that improvement in unemployment rate is due to millions of jobless not being counted. More

These people say they've already finished watching all 13 episodes of the new season of 'House of Cards.' More

A social media frenzy about the color of a dress is bringing fame and fortune for one small British fashion company. More

The top 5 consumer complaints have to do with identity theft, debt collectors, imposters, telephone companies and banks. More