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Mortgage Rates Revisit January Levels

Rising oil prices, fear of inflation and concerns about the selling of U.S. Treasuries by foreign banks put pressure on government issues. Heavy selling of Treasuries sent prices down and yields, which move in the opposite direction of prices, back up. In fact, yields rose in five of the last six sessions, adding 20 basis points to the benchmark 10-year note yield. Forecasts of colder-than-normal weather across Europe and the U.S. sent oil prices soaring well above $51 a barrel, raising concerns about inflation down the road. Although later denied by local officials, announcements by South Korea and Taiwan stating they would diversify financial reserves spurred panic selling as traders feared a massive dumping of Treasury holdings. Bond-friendly economic reports, however, limited selling and mortgage lenders were therefore able to keep a lid on rate increases. The January Consumer Price Index, which checks for inflation at the retail level, found none. The index rose only 0.1 percent, while the core, which excludes volatile food and energy prices, crept up 0.2 percent. This spurred a relief rally in Treasuries. Consumer confidence edged down to 104.4 in February -- a minimal decline from the previous month. Orders for January durable goods, items meant to last more than three years, took a nosedive, falling 0.9 percent. Weak demand for autos and commercial aircraft weighed on orders. When eliminated, durables rose 0.8 percent. Other good news within the report showed business spending up 2.9 percent and shipments rising 1.5 percent. First-time jobless claims were up by a surprising 9,000 to 312,000. Both the four-week average and continued claims - those people collecting benefits for more than one week - edged down.

Mortgage applications were somewhat flat for the week ended Feb. 18. Applications to purchase slipped 1.3 percent, while refis eked out a 0.1-percent gain, according to the Mortgage Bankers Association. Refis continued to account for almost 50 percent of mortgage applications. The 30-year fixed-rate mortgage (based on zero discount points) rose to just below 5.5 percent, while the 15-year fixed-rate crept above 5.0 percent. The introductory rate on the volatile one-year adjustable-rate mortgage neared 3.625 percent.

The week of February 28 is packed with end-of-month, beginning-of-month reports that can impact the markets. Data on manufacturing, new home sales, consumer sentiment and construction will be closely watched, but the markets could turn conservative near the end of the week as the release of the February employment report nears. The data within the report will set the trading tone for the day and possibly for the following week. Mortgage rates, however, should hold near their higher levels in the near term.