Article Archive Article PDF

Mortgage Rates Rise on Treasury Sell-off, But ...

Weaker-than-expected employment numbers spurred a huge rebound in the U.S. Treasury markets, sending prices back up and yields, which move in the opposite direction of prices, down. Sluggish data suggested a moderate economic recovery could keep the Fed from making aggressive rate hikes. This was a relief to traders who saw Treasuries sell off all week due to a host of negative influences. The decline in the dollar has investors worried that foreign investment in bonds will dry up. In addition, high oil prices that supported bonds plunged, and some Fed officials said inflation risks are on the rise, making upcoming rate increases seem more likely. These pressures sent the price of the benchmark 10-year note tumbling and its yield to a four-month high. As a result, lenders were forced to increase rates on most popular mortgage products. And although yields plummeted Friday, mortgage rates have yet to follow. A mere 112,000 jobs were added to non-farm payrolls in November -- far short of the 180,000-200,000 that was forecast, but the unemployment rate, which comes from a separate survey, fell to 5.4 percent. There were a number of positive economic indicators released that added to Treasury woes. Third quarter GDP was revised upward to 3.9 percent. Manufacturing also made gains. Although the Chicago PMI index on manufacturing conditions edged down, the national ISM index and the PMI showed significant increases in employment and new orders. Consumer confidence slid, with respondents comfortable with their present situation but less sure about the future. Personal income and outlays for October leapt ahead, with income increasing 0.6 percent and spending rising 0.7 percent. While new construction in October was flat, the Fed reported that the nation's economy is moving at a good clip Slight increases in mortgage rates for the week ended November 26 took their toll on mortgage activity. According to the Mortgage Bankers Association, purchases were off 0.6 percent, and applications to refinance slid 12.3 percent. The 30-year fixed-rate mortgage (based on zero discount points) is now just above 5.5 percent, while the 15-year fixed-rate mortgage is holding right at 5 percent. The introductory rate on the volatile one-year adjustable-rate mortgage jumped to 3.5 percent.

The next several days have little in the way of market-moving economic news. At the end of the week the producer price index, which looks for inflation at the wholesale level, will be released. But until then bond traders will focus on the dollar and the December 14 meeting of the Fed. The results of the November employment report is having a powerful effect on Treasuries, but it had the opposite effect on the dollar, which gave back Friday’s gains. If Treasury yields remain low, mortgage rates will edge back down to their previous levels.