Article Archive Article PDF

Mortgage Rates Remain at Elevated Levels Bond traders prepared for the worst early in the week, selling U.S. Treasuries in anticipation of strong readings on a number of key economic reports. Traders priced in bigger Fed rate hikes that might be needed to control inflation. The aggressive selling sent Treasury prices down and yields, which move in the opposite direction of prices, up, as the yield on the 10-year note hit its highest level since June. But when the expected strength in the reports failed to materialize, relief spawned renewed interest in Treasuries, and yields edged back down. Although the yield on the benchmark 10-year note that lenders use as a guide to set mortgage rates retreated, it has refused to dip below 4.5 percent. This has sent rates on some mortgage products higher, while others have remained at newly elevated levels.

The feared indicators turned out to be more bond-friendly than expected. The Employment Report for March showed weaker-than-expected job growth, with only 110,000 jobs added to non-farm payrolls. And the wages component did not show inflationary trends, bolstering Treasuries. But the ISM report on manufacturing conditions showed a jump in the prices-paid index, which sent Treasury yields back up. Consumer confidence in March fell to 102.4, with escalating oil prices weighing on shoppers. The final revision of fourth-quarter Gross Domestic Product (GDP) held at an increase of 3.8 percent, and the inflation indicator within the GDP was benign. Weekly first-time unemployment claims soared for the week ended March 25, adding 20,000 to hit 350,000 - considered by economists as the new line dividing expansion and contraction in the labor market. Personal income in February rose 0.3 percent, but the key consumption index showed little in the way of inflationary pressures. Construction spending in February rose 0.4 percent -- a little less than expected.

Although rates edged up, the Mortgage Bankers Association reported mixed mortgage activity for the week ended March 25. Applications to purchase rose 5.5 percent, while refinances fell 2.0 percent. Rates have been erratic this week, with the 30-year fixed-rate mortgage (based on zero discount points) waffling between 5.75 percent and 5.875 percent, while the 15-year fixed-rate is just over 5.375 percent. The introductory rate on the volatile one-year adjustable-rate mortgage remains at 3.625 percent.

The first week in April is light on economic news, with only first-time unemployment claims for the week ended April 1, and February reports on wholesale trade and consumer credit on the docket. Of the three indicators, only jobless claims are likely to have an impact. Early in the week, however, the markets should continue responding to Friday's March employment report. They may also be influenced by first-quarter corporate earnings reports that will begin to trickle in. The lack of influential data should allow mortgage rates to hold near their new levels.