Mortgage Rates continue up

A steep decline in first-time unemployment claims and continued signs of inflation ignited selling in U.S. Treasury securities on Thursday. Traders are sensitive to any signs of inflation, which erodes the value of fixed-rate assets, and they are on the lookout for events that could lead to inflation. Today they found both. Treasury prices tumbled and their yields, which move in the opposite direction of prices, crept back up after Wednesday's decline. Higher yields forced mortgage lenders who base their rates on yields to move them up on most mortgage products.

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 5.678 percent from 5.672 percent at Wednesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.258 percent from 5.269 percent at Tuesday's close.

Coming Up:
The final Consumer Sentiment report for September from the University of Michigan, Personal Incomes and Outlays for August and the Chicago PMI index on September business conditions are all due Friday. Consumer sentiment is expected to remain steady at 76.9, as is Personal Income with a 0.3 percent increase. Analysts are expecting a decline in Personal Spending, however, since that component rose in July due to the purchase of autos. A decline to minus 0.3 percent is estimated, which would be far below the 1-percent gain in July. This report contains an inflation indicator that will be closely watched by the markets. The Chicago PMI is also expected to rise to 53 from a grim 49.2 posted in August.

As usual, reports showing either economic strength or inflation would weigh on Treasuries. However, if reports come in on target, mortgage rates should hold near newly elevated levels.

Mortgage Rates Hold 9-28

A large jump in Durable Goods Orders for August spurred a round of selling in U.S. Treasury securities Wednesday. But selling slowed as traders considered the negative effects the hurricanes could have on business spending if a pullback in consumer spending occurs. Treasuries also benefited from a successful auction of 2-year notes that brought out a good percent of foreign investors. Buying of longer-term debt was especially aggressive, while the short-term debt suffered, as it is more sensitive to rate hikes. The drop in the yield of the benchmark 10-year note allowed mortgage lenders who base their rates on yields to hold them close to Tuesday's levels. Yields move in the opposite direction of price.

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 5.672 percent from 5.68 percent at Tuesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.269 percent from 5.245 percent at Tuesday's close.

Coming Up:

On Thursday the final revision of second quarter Gross Domestic Product (GDP) will be released along with the GDP chain deflator and revised corporate profits. Analysts are not expecting revisions, meaning that GDP will hold with a 3.3 percent increase, and the chain deflator will continue to show a 2.4 percent gain. First-time unemployment claims for the week ended Sept. 23 are expected to come in at 410,000 - a decline from the 432,000 reading from the previous week. These data, however, are somewhat skewed due to massive job losses caused by the recent hurricanes.

There is little news to influence Treasuries on Thursday, so oil prices will likely be in focus. Traders might also respond to any comments made by Fed officials, who have been vocal this week and unified in their support of further credit tightening. Treasury yields, however, have edged down over the past two days, which could allow mortgage rates to take a breather. It is unlikely that they will decline substantially from current levels, but they probably won't rise, either.

Mortgage Rates Continue to rise 9-27

Two bond friendly reports couldn't ease concerns about what Alan Greenspan would say in his speech to the National Association of Business Economics in Chicago on Tuesday afternoon. U.S. Treasury securities were under selling pressure for a good part of the morning, and let up only after the conclusion of Greenspan's remarks, which offered no new insights into Fed thinking.

In his speech Greenspan addressed the housing market and the risky “exotic” mortgages that can get people in over their heads. He added, however, that many homeowners have a sizable cushion of equity to protect them against falling home prices.

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 5.68 percent from 5.637 percent at Monday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.245 percent from 5.239 percent at Monday's close.

Coming Up:
A report on advance orders for Durable Goods in August is on tap for Wednesday. A key economic indicator, it monitors willingness to spend on big-ticket items by both businesses and consumers. Analysts are expecting orders for durables to increase by 0.9 percent, which would be a healthy rebound from the 4.9 percent loss they suffered in July.

The slight decline in Treasury yields, which mortgage lenders use as a base to set rates, will not likely send rates back down. But it might be enough to keep them from escalating, at least until the Durable Goods report comes in. Better-than-expected orders would put pressure on Treasuries, while a weak number might spur a small rally.

Mortgage Rates Rise 9-26

Lighter-than-expected damage from Hurricane Rita spurred strong selling of U.S. Treasury securities on Monday. Chicago Fed president Michael Moskow and Fed governor Susan Bies said, in separate speeches, that the Fed would continue to raise short-term interest rates to fight rising inflation in the wake of the hurricanes. Bies noted that the longer energy prices remain high, the greater the possibility that these higher prices will be passed along. Treasury traders fear inflation because it erodes the value of fixed-rate assets. Traders were hoping that high oil prices would dent consumer spending, slow the economy and lessen the need for Fed intervention. But this theory appears to be losing plausibility.

A session-long sell-off sent Treasury prices tumbling and their yields, which move in the opposite direction of prices, climbing. This influenced mortgage lenders who base their rates on yields to edge them up on some products.

Coming Up:

The only report due on Tuesday is New Home Sales for August. Although sales of new homes represent only about 15 percent of all single-family home sales, they will be closely watched, as they soared to an annual rate of 1.41 million units in July. Analysts are predicting a steep drop off in sales, which are expected to come in at 1.33 million units. The only other news will come from two weekly retail sales surveys, which carry little influence, except maybe during the holidays.

With little in the wings to change the direction of U.S. Treasuries in the near term, it is possible that selling will continue. This would likely keep mortgage lenders on the present path of rate increases.