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Yields of U.S. Treasury securities, which move in the opposite direction of prices, rose one day and slipped the next – reacting to economic news. Strong reports sparked selling as traders worried the Fed would be forced to keep hiking short-term rates. But signs of benign inflation encouraged buying, sending yields back down. Finally on Friday, yields edged off once again when much weaker-than-expected new homes sales sparked a Treasury price rally and gave mortgage lenders room to soften rates a bit.

Treasuries got a lift from the Producer Price Index (PPI), which looks for inflation at the wholesale level. It found none, with the PPI posting a 0.7-percent decline in November (due largely to a drop in oil prices), and the core rate, which eliminates volatile food and energy prices, rose only 0.1 percent. But a surge in Housing Starts for November trumped the PPI, reawakening fears of continued rate hikes. Housing starts climbed 5 percent to an annual rate of 2.12 million units, while Building Permits were up 2.9 percent to an annual rate of 2.16 million. This quieted talk, at least temporarily, that the housing boom is over. The final revision on third-quarter Gross Domestic Product (GDP), the nation’s broadest measure of economic health, came in at 4.1 percent – less than expected but the strongest since the start of 2001. The bugaboo, however, was an increase in personal consumption expenditures – one of the Fed’s favored inflation indicators. It rose to 1.4 percent from 1.2 percent, and selling ensued. But the next day Personal Spending/Income for November showed each component up only 0.3 percent. And the index of consumer spending rose by a less-than-forecast 0.1 percent, indicating that inflation is well contained. This turned sellers into buyers and sent Treasury yields back down. On Friday in thin-pre-holiday trade, buyers stepped back in as inflation concerns ebbed again when November new home sales slid 11.3 percent to a 1.245-million-unit annual rate, far weaker than expected.

The Mortgage Bankers Association reported that mortgage applications remained sluggish for the week ended Dec. 16. Applications to purchase fell 5.2 percent, while refis were off 1.6 percent. The rate on the 30-year fixed-rate mortgage (based on zero discount points) is holding at 6.0 percent, while the 15-year fixed-rate mortgage neared 5.625 percent. The rate on the volatile one-year adjustable-rate mortgage climbed to 4.625 percent.