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Mortgage rates appear to be headed lower as the 10-year Treasury yield deflates.

Secondary mortgage giant Freddie Mac reported in its Primary Mortgage Market Survey for the week ended July 2 that the average 30-year fixed-rate mortgage dropped 0.10% from last week to 5.32%. The 30-year was 1.03% better than last year at the same time.

The average 15-year fixed-rated mortgage also declined 10 basis points, leaving it at 4.77%, Freddie said.

A benchmark for fixed-mortgage rates, the yield on the 10-year Treasury note, was 3.491% near midday, improving from around 3.660% a week earlier.

Only 8% of panelists surveyed by Bankrate.com for the week July 2 to July 8 predicted rates will rise more than 2 BPS during the next 35 to 45 days, while the rest were evenly split over whether rates would fall or remain unchanged.

Freddie reported that the Five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.88%, 11 BPS better than the previous week.

The one-year Treasury-indexed ARM averaged 4.94% this week, 0.01% higher than a week earlier. The yield on the underlying index, the one-year Treasury bill, was 0.54% yesterday, according to U.S. Department of the Treasury data. The one-year Treasury yielded 0.50% a week earlier.

At 1.11%, yesterday’s six-month London Interbank Offered Rate was 4 BPS better that the previous week. LIBOR is the index on many outstanding subprime ARMs.

Reflecting last week’s contrasting increase in the 30-year and decrease in the one-year ARM, the Mortgage Bankers Association said ARM share increased to 4.3% in its Weekly Mortgage Applications Survey for the week ending June 26 from the previous week’s 4.1%.

Refinance applications tumbled 30% during the latest week, dragging down the refinance share to 46% from 54% a week earlier, MBA reported.

Sagging refinances also dragged MBA’s Market Composite Index down 19 percent on a seasonally adjusted basis to 444.8. Purchase applications eased a more moderate 5%.

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