Ten-year Treasury yield just under 4%

The government announced the sale of $19 billion in ten-year Treasury bonds today at a rate of 3.99%, while Russia's central bank is reportedly considering a modest move away from holding its reserves in dollars.

As a result bond prices continued on their downward path and yields pushed ever higher, which threatens to stifle the housing market that has been scraping along at very low levels. See Rising Mortgage Rates May Add to Housing Woes.

I've mentioned before how Fed Chief Ben Bernanke has committed over $1 trillion to buy agency-backed securities and another $300 billion in longer-term Treasuries in order to squeeze the risk premium out of the system - that is, narrow the spread between US Treasuries and lending among major financial institutions and thereby lowering borrowing costs.

His plan did temporarily bring down yields on government bonds and spreads have narrowed. See see Credit markets on the mend. But the so-called "bond vigilantes" are in open revolt over the massive federal budget deficit and future worries about inflation. And the spike in yields is playing havoc with homeowners who had planned to refinance mortgages, and it could keep some potential home buyers on the sidelines. See Higher Mortgage Rates Dampen Refi Enthusiasm.

Treasuries stabilize

I have been spending quite a bit of time on Treasury bonds lately because of the importance the yield has to the economy.

Earlier today, prices bounced back and yields fell as buyers stepped in to take advantage of more attractive rates. Yesterday, Moody's reassured nervous investors that the triple-A rating the US enjoys is safe, at least for now, aiding the benchmark security.

But sellers have stepped and the ten-year note is holding slightly above the unchanged mark. The story remains little changed: the extraordinarily high level of supply needed to finance a burgeoning budget deficit is scaring away investors.

Consequently, mortgage rates, which are tied closely to the ten-year bond, have jumped in recent days.

Separately, a look at jobless claims, durable goods orders, and new home sales can be seen on my homepage at Examiner.com.

Bailing out of bonds

The yield on the benchmark US Treasury note jumped 19 basis points (0.19%) to 3.73% today, causing the difference between the yield on the two- and ten-year notes to rise to the highest ever.



Everything from concerns about the ability of the US to maintain its triple-A credit rating to the huge supply of debt that must be sold to finance the growing federal deficit to the Fed's eventual pullout from the Treasury market are forcing up yields.

But the jump is presenting the Fed with a big problem. Typically, a widening yield curve - defined as the difference in yields for differing maturities of the same debt instrument - is a sign that better economic times lie ahead.

But rising yields are pushing up mortgage rates at a time when monetary officials want to keep rates low in order to support housing activity. The last thing Bernanke (or any of us) wants to see is his green shoots being singed by the heat of high mortgage rates.

I saw one major institutions offering a 30-year fixed rate at 5.75% today. That may force a few potential buyers off the fence, but it could keep many more on the sidelines.