Yesterday the ten year US treasury bond hit a of 3.75%, a rate that hasn't been seen for since early 2004.  Everything else being equal this should slightly bring down fixed mortgage rates over the next several weeks, as they tend to correlate well to the ten year.  So why is this occurring?  Some people will try and make the correlation to the FED lowering their target rate but it really doesn't have that much to do with that.  In fact the ten year has tended to rise immediately after the FED lowers, as it gets people in the credit markets more worried about the prospect of long term inflation.

There are two primary drivers bringing the ten year down right now.  The first is a flight to safety from other asset classes such as stocks, asset backed paper and other types of riskier debt.  Ultimately we'll probably see the spreads between fixed mortgage debt and the ten year treasury continue to widen also.  As money is taken out of these assets it has to go somewhere and US treasuries are seen as the safest thing out there, so people flock to them driving down the yields. 

The other big contributor is the decreased fear of inflation in the bond markets, the bond markets are waking up to the fact monetary deflation is starting to take place, and the last five years of heavy inflation may very well be coming to an end.  Credit/Bond markets typically are the first to "get it", with the equity markets, and commodity markets being a ways behind the curve.