Mortgage Rates Continue to Edge Up

Mortgage Rates 9-15-2005

U.S. Treasury securities didn't exactly rally on bland inflation news, and they accepted the big rise in first-time unemployment claims as a given. The regional manufacturing index stirred sellers, coming in a bit stronger than expected. But it was the Philly Fed survey on manufacturing conditions that really got U.S. Treasuries moving. The index plunged, which would normally excite bond traders, as it signals a slowdown in the manufacturing sector. But within the report one number jumped out: the prices-paid index soared, raising the specter of inflation. That was all traders needed to begin selling in earnest. The yield on the benchmark 10-year note, which began at 4.16 percent climbed to 4.23 percent, finally settling at 4.21 percent. The increase in yields, which are used as guides to set mortgage rates, forced lenders to begin edging rates up on many products.
On Wednesday all the focus was on the Consumer Price Index (CPI), but it came in right on target. The CPI rose 0.5 percent - the same as in July - and the core index, which excludes volatile food and energy prices, edged up by an expected 0.1 percent, duplicating July's outcome. Business Inventories for July surprised, falling 0.5 percent when a 0.1- percent increase was expected. Inventories from the previous month were unchanged. Business sales showed a good increase, however, rising 1.1 percent, eclipsing the upwardly revised 0.8-percent rise in June sales. First-time unemployment claims for the week ended Sept. 9 rose by 71,000 to 398,000 - the biggest one-week jump in a decade. This is the first report that shows the impact on jobs in the wake of Katrina. Current forecasts say that as many as 500,000 jobs might have been lost as a result of the hurricane. Continued claims, people collecting benefits for more than one week, rose to 2.59 million, and this number is expected to escalate.

Coming Up:

The only economic report scheduled for Friday is the University of Michigan's preliminary consumer sentiment report for September. This is the first insight as to how the consumer is coping since the advent of Hurricane Katrina. Analysts are expecting sentiment to fall to 84 from the 89.1 reading taken at the end of August. A drop such as this could boost Treasuries, which respond well to weak consumer appetite.

Mortgage rates today began to creep up in accord with Treasury yields. It is likely that rates will continue to edge up until something - maybe the U. of M. survey - turns things around.

Mortgage Rates Rise 9-14-2005

U.S. Treasury securities rallied Wednesday on the initial Retail Sales report that showed sales plunging 2.1 percent in August. This was nearly double the 1.3-percent decline that was forecast, and far short of the 1.8 percent increase in July. Bond traders felt that the significant dip in consumer spending could slow the economy, but a closer look revealed that the consumer is alive and well. Auto sales dove 12.9 percent in August, dragging overall sales down, but when they were excluded, sales rose by a healthy 1.0 percent. The forecast and the previous months sales both showed 0.5-percent increases. Sales of electronics, furniture and sporting goods were especially strong, along with health and personal care products. Powerful spending by the consumer was also seen by bond traders as a good reason for the Fed to hike rates at its Tuesday meeting.

At 4 p.m. EDT, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.561 percent versus 5.536 percent at Tuesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.13 percent from 5.119 percent at Tuesday's close.

Coming Up: Thursday is another busy day on the economic front. The Consumer Price Index (CPI), one of the main inflation indicators, is due. While it is forecast to climb 0.5 percent, the core rate, which excludes volatile energy and food prices, is expected to increase by a tame 0.2 percent. The predictions are close to July results that showed CPI up 0.5 percent and the core gaining 0.1 percent.

Overnight and into tomorrow mortgage rates should hold at today's higher levels. Strong economic data and signs of inflation could keep the pressure on, while reports that come in on forecast or below might allow lenders to edge rates down a little.

Mortgage Rates Fall Back

Mortgage Rates Fall 9-13-2005

Mortgage rates retreated to previous levels on Tuesday after staging a one-day surge on Monday.

A report reassuring traders of U.S. Treasury securities that inflation is indeed under control allowed buyers to tiptoe back into the bond markets. Fear of increasing inflation, which robs fixed-rate assets of their value, kept pressure on Treasuries yesterday, as did falling oil prices. But today's reverse in sentiment sent bond prices back up and their yields, which move in the opposite direction of prices, down to Friday's levels. This allowed mortgage lenders who base their rates on Treasury yields to edge rates back down.

The Producer Price Index (PPI), which measures inflation at the wholesale level, rose by a less-than-expected 0.6 percent in August. Analysts were forecasting a 0.7-percent increase in PPI and a 0.1-percent rise in the core rate, which excludes volatile food and energy prices. The core - the number that most economists regard as a better indication of widespread inflationary pressures - was unchanged in August after rising 0.4 percent in July.

In a separate report, Industrial Production for August is expected to climb 0.4 percent - a big increase over the 0.1 percent rise in July. Capacity Utilization, the percent of mines, utilities and factories in production, is expected to edge up to 79.9 percent from the previous 79.7 percent in July. Bigger increases in production could be interpreted as adding to economic strength, which could provoke selling in bonds. Because Treasury yields, which lenders base their rates on, edged back down to previous levels, this should allow mortgage lenders to hold rates at newly lowered levels.

Mortgage Rates Climb

Mortgage Rates Rise 9-12-2005

A trio of reports weighed on U.S. Treasury securities on Monday, sending prices down and yields, which move in the opposite direction of prices, back up to two-week highs. Meanwhile, oil prices continue to fall and that put big pressure on Treasuries, as traders believed that high fuel costs would slow the economy. And it now appears that, although horrendous, the damage caused by Hurricane Katrina will not be as extensive as originally feared. This could be interpreted as a lesser blow to the economy than expected -- a negative for bonds. And then there’s the Fed meeting. It isn’t scheduled until Sept. 20, but there has been a lot of hand-wringing over whether or not the Fed will raise short-term interest rates and what it will say after the announcement.
In addition to the above, there are some key inflation data due out this week that are of concern to traders, as well as the Advance Retail Sales for August. Tuesday’s Producer Price Index (PPI) for August, which measures inflation at the wholesale level, will be of major concenr. Signs of higher-than-forecast inflation would likely spur selling in Treasuries, as this erodes the value of fixed-rate assets, such as bonds. Analysts are expecting the PPI to rise 0.7 percent, but core inflation, which excludes volatile food and energy costs, to edge up by a tame 0.1 percent.

These pressures forced Treasury yields, which mortgage lenders use to set rates, up and mortgage rates followed. Rates rose by one-eighth of a point (0.125) on most popular products.

Coming Up:
The Producer Price Index for August is set for release on Tuesday along with the July U.S. trade deficit. The trade gap is expected to tick up by only $1 billion to $59.8 billion from $58.8-billion shortfall in June. This report generally influences the currency markets more than stocks or bonds. In addition, two weekly surveys of retail activity for the previous week will be released, but their impact is muted.
Treasuries will likely dance to the tune of the PPI on Tuesday. If it comes in on target, i.e., shows that inflation at the wholesale level is benign, Treasuries may get a boost, but inflationary numbers would likely cause selling that could put upward pressure on mortgage rates.

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