Houston's Rate Sheet

Rate Watch

As anticipated, rates ended higher last week. Freddie Mac's weekly survey showed 30-year fixed rate products averaging 6.28 percent, up from last week's 6.24 percent. That average is the highest Freddie Mac has reported in 2 months. ARM's finished up as well. One-year adjustable rate mortgages increased to 5.36 percent this week, up from last week's 5.34 percent, and rates on five-year adjustable rate mortgages rose to 5.95 percent this week, up from 5.89 percent. The difference between Fixed Rate products and Adjustable Rate products remains minimal. In most situations, when taking rate versus risk into account, Fixed Rate loans are still advisable. The yield curve remains relatively flat.

I think it is pretty safe to say that rates will be going up this week. The bond markets continue to be concerned about inflation and a Federal Reserve Rate hike. Ben Bernanke in his first hearing in front of Congress left the door wide open for an additional rate hike next month, and the release of the Producer Price Index revealed that inflationary pressures still exist. 100% of Bankrate's rate watchers believe rates will rise this week.

Despite bond market gloom, reports revealed a healthy, robust economy. Housing Starts were up from the previous month, and 1st quarter GDP growth is expected to be strong.

This week's economic calendar is full of excitement. The markets and the banks are closed today for President's day, so we've got a short week.

Tomorrow, the Fed Minutes from their previous meeting will be released. These Minutes reveal conversations that occurred during the Fed's previous meeting in which rates were raised. They could give us some insight about the Board's internal debate, and the possibility for future rate increases.

The Consumer Price Index will be released on Wednesday. The CPI is the most widely followed indicator of inflation. If the CPI is higher than expected, this can force mortgage rates up much higher. Inflation eats into the yields of bonds. It is the arch nemesis of bond investors and the Federal Reserve. The Producer Price Index was up higher than expected last week, so it will be interesting to see what happens. CPI's estimated increase is 0.2 percent, and Core CPI (CPI minus food and energy) is estimated to increase 0.5 percent. Let's hope that the consensus is correct.

A couple of Treasury Auctions will go down as well: the 1-year Treasury Note on Wednesday and the 5-year Treasury Note on Thursday. The market will be most interested in global demand for these securities. Foreign Investment in US bonds is a big reason we've experienced historically low rates over the past several years. If Foreign Investors back off of Treasury Notes, they might also back off of Mortgage backed securities (MBS). If demand is down, yields will have to go up in order to attract investors.

posted by Vincent Biondillo @ 9:00 AM