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Mortgage rates remain at high levels

After a promising start to the week, demand for U.S. Treasury securities soured as bullish economic reports stoked fears that the Fed would continue to raise short-term interest rates beyond its May 10 meeting. The yield on the benchmark 10-year note, which moves in the opposite direction of price, tapped 5.11 percent, and mortgage rates, which move in sync with Treasury yields, resumed their upward trek. However, traders cheered Fed chief Ben Bernanke's comments to Congress on Thursday regarding a possible rate-hike pause, and Treasury buyers stepped back in. Yields responded by edging down, and remained lower in the wake of Friday's reports.

First-quarter gross domestic product rose 4.8 percent, the fastest increase in more than two years. But core consumer expenditures came in at a benign 2 percent, calming inflation fears. In a separate report, the employment cost index showed no signs of inflation in wages and benefits paid to workers, so it had little impact on Treasuries.

Consumer confidence in April hit its highest level in four years, coming in at 109.6. Respondents were upbeat about their present situation and future expectations, with plentiful jobs cited as a major plus. The University of Michigan's consumer sentiment survey for April, however, edged down to 87.4 - missing forecasts.

Unexpected strong home sales were also tough on Treasuries. Existing home sales in March rose 0.3 percent to an annual rate of 6.92 million units. The bad news revealed that inventories grew 7 percent, which equates to a 5.5-month supply of homes for sale. The biggest surprise was new home sales, which soared 13.8 percent - the biggest jump in 13 years. Sales reached an annual rate of 1.213 million units, but officials warned that drastic revisions could be forthcoming. The inventory of unsold homes also crept up, but the median sales price edged down to $224,200.

Orders for durable goods, big-ticket items meant to last more than three years, climbed 6.1 percent in March, led by a 71 percent increase in orders for civilian aircraft. Machinery and electronics also did well. Excluding transportation, durables posted a healthy 2.8 percent increase, and orders for core capital equipment goods, which equate with business investment, rose by 3 percent. In a separate report, first-time unemployment claims for the week ended April 22 rose to 315,000 from a revised 304,000. The more reliable four-week average climbed to 308,000 and continued claims - people who have collected benefits for more than one week - hit 2.45 million.

The volume of mortgage applications continued to decline, according to the Mortgage Bankers Association. For the week ended April 21, purchase applications fell 4.4 percent, while refis were off by 2.4 percent. The 30-year fixed-rate mortgage (based on zero discount points) is above 6.375 percent, while the 15-year fixed-rate mortgage neared 6.125 percent. The rate on the five-year, adjustable-rate mortgage held at 5.875 percent.

The first week in May features a number of reports on the manufacturing sector and two key first-quarter reports - personal income/spending and productivity and costs - that contain inflation data and could move the markets. But Friday's employment report for April will contain the most influential data. If the early-week reports suggest contained inflation, mortgage rates could edge down. Any decrease, however, would not likely be significant.

Carolyn Siegel, associate editor

Carolyn@interest.com