Ebbing inflation fears get the credit. Investors hate inflation because it erodes the value of bonds and the income they pay. Higher inflation earlier this year rattled the bond market. The T-bond rose to 7.04% May 21. Rising prices for gold and some commodities also have kept investors on edge.

Other economists remain wary of inflation. David Jones, chief economist at Aubrey G. Lanston & Co., still predicts inflation will be slightly higher this year than last. The Federal Reserve is likely to raise short-term interest rates later in the year to fight inflation, he says. That could push up bond yields and mortgage rates. "We're coming to the end of the good news on interest rates," he says.