The Federal Reserve’s aggressive moves will likely cause more rates reductions in conventional mortgages rates to as low as 5%, said Tony Crescenzi, chief bond market strategist at Miller Tabak. Rates on thirty-year mortgage loans currently average about 5.5%.   Plus, Crescenzi predicted a “collapse” in Libor, with the 3-month London interbank offered rate falling below 1% by early January from 1.847% currently.   

The central bank’s commitment to lowering mortgage rates likely spurred buying of 10-year and 5-year Treasury notes, Spinello said. As mortgage rates drop and people refinance out of existing mortgages, dealers in mortgage-backed securities often replace those loans by buying Treasurys of similar origin.   Also helping bonds Tuesday, a report showed U.S. consumer prices plunged 1.7% in November, the fastest pace since 1947. Economists surveyed by MarketWatch were expecting the CPI to fall by 1.4%.  FHA mortgage rates continued to drop, as lender reported FHA loans featuring fixed interest rates were reported across the country.