Article Archive Article PDF

Mixed Signals Leave Mortgage Rates Unchanged A two-day rally in U.S. Treasuries, followed by moderate selling, left yields on government issues up a bit from where they were a week ago. Treasuries rallied on bond-friendly comments by Fed chairman Alan Greenspan, but turned around when he testified before a Joint Committee of Congress that rate increases will continue at a 'measured' pace and said the Fed is 'data dependent' with regard to future moves. Greenspan added, "The U.S. economy seems to be on a reasonably firm footing and underlying inflation remains contained." Bond traders sold on confirmation that rate hikes would continue, raising recent record-low yields, which move in the opposite direction of prices. Selling escalated on word of a growing trade gap that suggested future inflation and built a case for economic strength. Treasury yields ticked up to their highest levels in two weeks, but thus far mortgage rates that are based on yields have remained near last week's low levels. There was much conjecture over Greenspan's speeches and what he might or might not say, and his comments took on special significance due to a decided lack of economic news during the week. The U.S. trade balance in April came in at $57 billion -- its widest margin since October, with both imports and exports setting records. This was below the $58 billion deficit that analysts were expecting. First-time jobless claims for the holiday-shortened week ended June 3 fell by 21,000 to 330,000. The more influential four-week average, which smoothes volatility, edged down to 331,750. Wholesales inventories in April climbed 0.8 percent - double expectations -- with unsold autos responsible for a good part of the increase. Wholesale sales, however, rose 1.5 percent - a huge hike from the 0.2-percent reading from the previous month. A decline in mortgage rates for the week ended June 3 boosted mortgage applications - especially those for refinances. According to the Mortgage Bankers Association, applications to refinance soared 10.3 percent and accounted for 43 percent of all applications. Purchases rose 3.6 percent.

The rate on the 30-year-fixed mortgage (based on zero discount points) remains above 5.375 percent, while the 15-year fixed-rate edged up past 5.0 percent. The introductory rate on the volatile one-year adjustable-rate mortgage shot up to 3.875 percent. Market-moving economic releases are plentiful, with reports on retail sales, inflation, manufacturing, housing and consumer confidence on the docket. Of the dozen indicators scheduled, the Consumer Price Index (CPI) will be the most closely watched, as it checks for inflation at the retail level. Retail sales monitor consumer spending - key to economic growth - and regional and national reports on manufacturing also are good barometers. If inflation remains under control and economic growth is contained, Treasuries should hold reasonably steady, allowing mortgage rates to do the same.

Carolyn Siegel, Staff Writer