What more Fed easing really means for mortgage rates

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Now that the Fed is expected to keep its foot on the easy money pedal for months to come, don't expect to see interest rates go much lower.

Fixed income strategists say the 10-year Treasury is likely closing in on the bottom of its yield range, a move that could be good for roughly another quarter point reduction in 30-year mortgage loan rates.

The 10-year yield, on a wild ride since the Fed first began talking about tapering its $85 billion monthly bond buying program, was at 2.48 percent Wednesday, a four month low. That is well above the 1.61 percent year low from May 1 and off the 3 percent it reached at the height of anticipation about a possible pull back in Fed easing.

"A lot has changed. It's a tough environment," said Brett Rose, head of U.S. interest rate strategy at Citigroup. "I think we're going to settle into a range around here. I don't think we're going to go a lot lower. I think we would trade in the 2.40 to 2.75 range for the next couple of months."

(Read more: Disappointing jobs report means more Fed easing)

Rose said the economy, while growing slowly, does not justify lower yields. "The economic data is good, not great, but good enough. Some of the systemic risks we've been dealing with over the last several years have been lowered -- fiscal policy negotiation being a big exception to that so I don't see any resaons for rates to go back to levels of the first half of this year," he said.

Rose said the mortgage rates should go down along with the five-year and 10-year Treasury yield. "Since the 14th, we've got 5-years down 15 basis points and 10-years down 21 basis points so I would expect the mortgage rate to be down about 18 basis points." He said if the 10-year moves down to the bottom of his expected range it could be another 20 basis points decline for 30-year mortgage loan rates.

Rates on 30-year mortgages fell 7 basis points in the last week to 4.39 percent, the lowest since June, according to the Mortgage Bankers Association. The MBA reported Wednesday that applications for U.S. home loans dropped slightly int he latest week, even with the lower rates, as refinancing activity decreased. Demand for home purchases rose slightly.

Lord Abbett fixed income strategist Zane Brown said some investors are expecting the Fed may now hold back from trimming its bond buying program until June, though many more see it in March.

If the Fed were to wait until June, Brown said rates could start rising on their own due to inflation expectations. The Fed has said it would keep short term rates low until 2015.

As for longer term rates, he expects a slight move lower. "At the margin, it would help (mortgages) but I think it's really marginal and not something that has a dramatic impact. We're talking baby steps here. I think the fear is if they started unwinding now, you'd be at 3.5 percent on the 10-year and that would really stall out the economy." Brown said. "Prior to May, we had a huge amount of refinancings. It's not surprising for the last four months, we were creating 150,000 jobs a month, when in the beginning of the year it was 190,000."

Brown said when interest rates began to rise in May, the economy took a hit. "That's one thing (Fed Chairman Ben) Bernanke cited - the impact of higher rates on certain parts of the economy. It was part of their statement," he said. Brown was referring to the statement following the Fed's September meeting, where it chose not to pull back from its bond purchase program.

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.