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Good news, bad news -- mortgage rates steady

Traders in U.S. Treasury securities found reasons to both buy and sell, but in the end, mortgage rates -- which move in tandem with Treasury yields -- held close to recent levels. The holiday-shortened week offered little economic news, but a key economic report and minutes from the Jan. 31 meeting of the Federal Open Market Committee kept the markets humming. Treasury yields, which move in the opposite direction of prices, rose one day and fell the next, leaving mortgage rates largely unchanged. The big plus for Treasuries came from the consumer price index2, or CPI, which showed underlying inflation remained contained. Although the CPI climbed by a stronger-than-expected 0.7 percent in January, the core CPI, which excludes volatile food and energy prices, rose 0.2 percent -- right on target. Energy was responsible for the unexpected leap, but strong gains in prices for food and housing also contributed. The index showed that the high cost of energy is not yet affecting prices at the retail level. This spurred a rally in Treasuries, as inflation erodes the value of fixed-rate assets.

Most of the time, the markets ignore the index of leading economic indicators, or LEI. But the January LEI, which looks at the economy six months out, posted an eye-opening 1.1-percent gain. This fourth-straight in-crease sparked concerns about strong economic growth that would have to be contained with further rate hikes. But the minutes from the Fed meeting in January soothed such fears, showing that members remain convinced that core inflation is tame. The committee conceded, however, that inflation is a long-term concern and rate-hike decisions will be data-dependent.

First-time unemployment claims re-versed course, for the week ended Feb. 17. Claims fell by 20,000 to 278,000 after rising by 19,000 the previous week. Claims have held below 300,000 for six straight weeks. The four-week average, which smoothes volatility, fell to 281,750. In a separate report, durable goods orders plunged 10.2 percent in January, but weak aircraft orders were responsible. There were, however, strong upward revisions for December.

Demand for mortgage applications was mixed during the week ended Feb. 17. Applications to purchase rose 4.3 percent, while refis fell again, this week by 4 percent, according to the Mortgage Bankers Association.The rate on the 30-year fixed-rate mortgage (based on zero discount points) is just below 6 percent, while the 15-year fixed-rate mortgage remains under 5.625 percent. The rate on the five-year, adjustable-rate mortgage held at 5.625 percent.

There is a full schedule on tap of economic indicator releases, headed by January new and existing home sales, manufacturing data, personal incomes/outlays for January, revised 4th-quarter gross domestic product, or GDP, and two consumer confidence reports for February. Signs of strong economic growth would put pressure on Treasuries and a slight increase in mortgage rates could follow.

Carolyn Siegel

Carolyn@interest.com