If bond yields keep falling - or just stay low - the repercussions will be enormous. Bond mutual fund investors will reap big gains. Home buyers can expect lower mortgage rates, homeowners with high rates can save by refinancing at lower rates. Corporations can refinance long-term debt at low rates. And the economy, which has shown signs of weakening, could get a boost as well from consumer spending. The one hitch: Most analysts think the big rally in bonds will soon fizzle.

Tuesday, fresh signs of a slowing economy - rising wholesale inventories - helped push the yield on the 30-year T-bond down to 6.94% from 7.03% Monday. It's down more than a quarter-point since Thursday, and almost a full percentage point since January. Many money managers are stunned. "I didn't think the 30-year T-bond yield would go below 7.25%," says Bill Fleckenstein, money manager at Olympic Capital Management in Seattle. "I sure as hell didn't think it would go below 7%."

-- Bond mutual funds should soar. Prices of existing bonds rise when market interest rates fall. That's because a bond's interest payments don't change. For example, a bond with a face value of $1,000 yielding 7.6% pays a fixed $76 in annual interest. But newly issued bonds now yield just 6.9%, or pay $69 on a $1,000 investment. The older bond now would be worth $1,100, giving it a yield equal to the market rate of 6.9%. The bond rally already has helped the average government bond fund return 6.8% through May 5 this year, with interest reinvested, says industry tracker Morningstar. That's a big change from 1994, when the average government bond fund lost 3.6%. Why the change?