Don't be confused by bond market terminology however, they often confuse people. When you hear or see bond prices displayed, make sure you understand that bonds have both a 'price' and a 'yield', and they move opposite of each other. So, when CNNfn says "the bond market rallied today" or that 'bonds closed up 5/32nds today", that means that the price of the bonds went up, so the yield went down. A decrease in the yield is good news for mortgage rates.

If you don't understand how prices can go up if the yield is falling, you are not alone. The concept is actually pretty simple. Let's say a 10-year bond, with a $1,000 face value is sold with a coupon rate or yield of 5%. If a years later the current interest rate environment is 5#, then the bond will sell for $1,000 on the secondary market (where one bond owner sells to another bond owner). What if the current rates rise to 6%? In that case, no one will want to buy a bond yielding 5% when they can spen the same $1,000 to buy a $1,000 bond yielding 6%. So, in order to sell the bond at a current market yield, bond buyers will only be willing to buy the 5% bond if that can buy it at a discount. If that same bond were discounted to about $910, then over the remaining 9 years it will pay a 5% coupon, PLUS it will be worth $1,000 in 9 years, which will mean that is will effectively appreciate at about 1% a year, yielding a 6% annualized return. So, when interest rates rose, the price of the bond had to fall to yield the greater return demanded by investors. Conversely, if interest rates fall, the price of the bond will rise to reduce the return on the bond.