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.