Mortgage securities gained against U.S. Treasury notes as rising yields helped cool some concerns spurred by a drop early last week in the benchmark rate for mortgage loans.

The 10-year Treasury yield regained 2 basis points, to 6.14% last week, stirring optimism among some investors that rates could rise enough to moderate the rush of home loan refinancings anticipated in coming months.

That rise in yields "gave a temporary respite for mortgage investors because it lessened prepayment fears," said Paul Van Kampen, who helps manage $1.4 billion of bonds at NCM Capital Management Group, Durham, N.C. "This makes people feel better today, but I think prepayment fears are still going to increase in the next five months."

The benchmark Government National Mortgage Association current coupon 7% pass-throughs for delivery in August gained 1/32, to 99 24/32, for a yield of 7.10%. The yield premium, or spread, they pay over comparable 10-year Treasuries narrowed 3 basis points, to 95.

The outlook that lower rates could force mortgage bonds into early redemption has prompted many investors to swap into lower-coupon mortgage securities, whose underlying loans are less vulnerable to refinancings.

The 10-year yield probably won't end the year higher than 5.75%, so "you're going to see a lot of refinancings," Mr. Van Kampen said. "It's going to be a busy year for the mortgage bankers."

A report suggests that more homeowners are refinancing. Mortgage lenders got 5% more refinancing applications last week than in the week earlier, according to BHK Corp., Greenwich, Conn.

The increase in refinancing activity came though the average 30-year mortgage lending rate was unchanged last week, at 7.47%, according to Freddie Mac.

Paul Van Kampen of NCM Capital Management Group, Durham, N.C., said the bulk of his mortgage portfolio is invested in 15-year and 30-year 6% and 6.5% pass-throughs, whose loans are fixed at such low rates that it probably would not be worthwhile for the homeowners to bother refinancing.

He said his portfolio exposure to mortgages also is fairly limited, with stakes of less than 25% in most accounts. "Mortgage buyers ought to just continue in the discounts," he said. "Corporate bonds and Treasuries are going to outperform mortgages in general."

To be sure, if rates keep dropping even the lower-coupon pass-throughs that Mr. Van Kampen is holding could get hurt by refinancings, he said. "Let's face it, if rates drop further, the discounts aren't going to be discounts anymore."

That's sapped the mortgage appetites of many investors, like New York Life Asset Management. "If you haven't bought mortgage already, I think you should wait," said Kenneth Boertzel, who manages $6 billion of mortgages there.

Some banks like Norwest Corp., with $18 billion of mortgage bonds under management, have halted their mortgage buying altogether in recent months, according to portfolio manager Bill Chepolis.

Still, rates can't keep falling forever, and some mortgage investors are starting to see a light at the end of the tunnel.

"The turnaround in mortgages will be sooner rather than later," said Bob Wasilewski, who manages more than $1 billion of bonds at ASB Capital Management in Washington.

Mr. Wasilewski recently bought $20 million of Ginnie Mae 7.5% issues, taking advantage of the relatively wide yield premiums they pay over Treasury notes.

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