Interest rates fall after GDP is revised higher but home sales fall; Treasurys demand higher

Rates fall after mixed economic news

CHARLOTTE, N.C. — Interest rates fell in the bond market Friday after another surprisingly weak economic reading.

The National Association of Realtors said sales of existing homes fell for the second straight month. Analysts expected the trade group to report that sales rose.

The report is the second downbeat assessment of the housing market in three days, and added to concerns about the economy. The Commerce Department said Wednesday that new home sales fell last month.

But bad economic news is bullish for bonds. Investors expect that continuing weakness in the economy will put greater pressure on the Federal Reserve to keep interest rates at their current lows. And Fed Chairman Ben Bernanke has already told Congress this week that he anticipates rates will stay low for some time. The Fed’s moves affect interest rates across the economy, including the Treasury bond market.

The yield on the 10-year Treasury note that matures in February 2020, which is a basis for rates on mortgages and other consumer loans, fell to 3.62 percent in trading Friday from 3.64 percent late Thursday. Its price rose 4/32 to 100 1/32.

Investors looked past an upward revision in the government’s fourth-quarter gross domestic product report. The report of a 5.9 annual growth rate in the GDP indicates that while the economy is healing, it may not be able to sustain the expansion in the first part of this year. That would also give the Fed more room to keep rates stable.

In other trading, the yield on the 30-year bond that matures in February 2040 fell to 4.56 percent from 4.58 percent. The price rose 10/32 to 101 2/32.

The yield on the two-year note that matures in February 2012 fell to 0.82 percent from 0.83 percent, while its price was unchanged at 100 3/32.

The yield on the three-month T-bill that matures May 27 rose to 0.12 percent from 0.11 percent. Its discount rate was 0.11 percent.