Article Archive Article PDF

Active Buying in Treasuries Keeps Mortgage Rates Low

It's been a good week for U.S. Treasury securities and a great week for mortgage rates - many of which have edged down. Momentum from the weaker-than-expected January employment report carried over into the week of Feb. 7, sending Treasuries prices up and yields, which move in the opposite direction of prices, down. In fact, the yield on the benchmark 10-year note that mortgage lenders use to set rates, fell below 4 percent - if only for one day -- for the first time in more than four months. A series of successful bond auctions boosted demand for government debt, and statements from Fed officials allaying fears of inflation only added to the clamor. As a result, yields slid and mortgage lenders were able to follow by lowering rates on many mortgage products. Economic news was scarce, allowing bonds to trade without pressure. Treasuries didn't hit a speed bump until Thursday, when they sold off on stronger-than-expected first-time jobless claims. For the week ended Feb. 4, claims fell to 303,000 - the lowest level in four years. The more closely watched four-week average, which smoothes volatility, slipped to 315,000 -- its lowest level since November 2000. The U.S. trade deficit in December narrowed to $56.4 billion from a revised, record-setting $59.3 billion in November. In 2004, however, the deficit increased by 24.4 percent. The expanding deficit with China - rising 30.6 percent in 2004 -- had substantial impact on the bottom line. Consumer credit rose by only $3.1 billion in December, while wholesale trade inventories climbed by a mere 0.4 percent versus a revised 1.2-percent increase in November.

Low mortgage rates for the week ended Feb. 4 had little impact on mortgage applications, according to the Mortgage Bankers Association. Refinances remained active, rising 7.8 percent, but purchase applications crept up by only 1.0 percent. The 30-year fixed-rate mortgage (based on zero discount points) was the chief beneficiary of the drop in yields, with the rate falling to 5.375 percent. The 15-year fixed-rate is now just above 4.875 percent, while the introductory rate on the volatile one-year adjustable-rate mortgage held at 3.375 percent.

The week of Feb. 14 should keep the financial markets humming, as several market movers are scheduled for release. Not only is there a lot of data on manufacturing, but January retail sales and the producer price index (PPI) also are on the docket. The PPI will be of special interest as it monitors inflation at the wholesale level. In addition, housing starts and building permits for January will be eyed after making big upward moves in December. Analysts are expecting small to moderate gains in most categories. If the data come in on target that should allow mortgage lenders to hold rates near newly lowered levels.