Bonds’ dramatic year sets stage for higher rates

It was a dramatic ride for bonds and the mortgage market in 2010 as an economic crisis in Europe and wonky concepts like “quantitative easing” helped push down yields to levels not seen since the 1950s.

The new year may be just as eventful, but one where higher rates are likely.

The yield on the 10-year Treasury note rose to a yearly high of just under 4 percent in April and then plunged as low as 2.38 percent in October. That contributed to a historic drop in mortgage rates that brought 30-year fixed-rate loans to a low of 4.17 percent early in November.

But even after Treasury yields started climbing at the end of the year, pushing mortgage rates higher, savers have yet to see the benefits. Average yields on five-year CDs stood at 1.56 percent at year’s end, according to Money market rates have been stuck at 0.19 percent for the last five weeks of the year.

The yield on the 10-year Treasury note fell to 3.29 percent on the final day of the year from 3.36 percent late Thursday, as fund managers shuffled their portfolios to match their benchmark indexes. Its price, which moves in the opposite direction, rose 56 cents per $100 invested.

In other trading, the 30-year bond rose $1.46, with the yield falling to 4.33 percent from 4.42 percent. The yield on the two-year note fell to 0.59 percent from 0.64 percent. The yield on the three-month Treasury bill rose to 0.12 percent from 0.10 percent. Its discount rate was 0.12 percent.

Federal Reserve Chairman Ben Bernanke signaled in August that he was prepared to pump hundreds of billions of dollars into the banking system by buying Treasury securities. His goal was to push down borrowing rates to stimulate the economy through what’s come to be known as a “quantitative easing” strategy.