Article Archive Article PDF

Mortgage Rates Edge Down on Some Products

A hint from the Fed that its rate-hike cycle may winding down rallied U.S. Treasury securities during a holiday-shortened week that offered little else in the way of market-moving news. The release of the minutes from the Nov. 1 meeting of the Federal Open Market Committee (FOMC) stated that while the Fed is cognizant of the need to check upside risks to inflation and keep inflation expectations contained, it 'noted that policy setting would need to be increasingly sensitive to incoming economic data.' Fed watchers saw this as a sign that the language in the FOMC statement will be changing and suggests that credit tightening will end soon. Prices of Treasuries rose and their yields, which move in the opposite direction of prices, fell to the lowest levels in a month. But traders are now rethinking this theory and sellers are moving in. Mortgage lenders who base their rates on yields edged them down on some products, but there could be a turnaround in the offing.

A steep rise in the index of Leading Economic Indicators (LEI) for October had little effect on Treasuries. LEI rose 0.9 percent with gains described as broad-based. This contrasted to the 0.8 percent decline posted in September, which was skewed due to the hurricanes. A jump in first-time jobless claims for the week ended Nov. 19 also encouraged buying, with applications increasing by a higher-than-expected 30,000 to 335,000. It was noted, however, that 10,000 of the new claims were hurricane-related. The more influential four-week average that smoothes volatility crept up to 323,250, while continued claims -- those collecting benefits for more than one week -- edged up to 2.82 million.

The surge in buying due to the jobless report was short-lived, as it was followed by the University of Michigan's final report on consumer sentiment, which rose to 81.6 from the 79.9 posted two weeks ago. It was up sharply from the final October reading of 74.2. This increase bodes well for the economy but puts pressure on bonds.

Mortgage applications for the week ended Nov. 18 fell, with purchase activity down 1.2 percent. The Mortgage Bankers Association also reported that applications to refinance were off 6.9 percent and have fallen 17 percent over the last four weeks. The rate on the 30-year fixed-rate mortgage (based on zero discount points) held at 6.0 percent, while the 15-year fixed-rate mortgage rate is below 5.625 percent. The rate on the volatile one-year adjustable-rate mortgage climbed to 4.375 percent.

The next several days are loaded with economic news that includes new and existing home sales for October, Durable Goods Orders, Consumer Confidence, manufacturing data and Personal Income and Outlays. But the big release comes on Friday - the Employment Report for November. Strong economic news would put downward pressure on Treasuries and could push mortgage rates back up. But if the reports come in as forecast rates should hold near present levels.

Carolyn Siegel

carolyn@interest.com