Rate Watch
For the sixth straight week, Freddie Mac's weekly survey resulted in higher mortgage rates. The benchmark 30-year fixed rate mortgage (FRM) increased modestly from the previous week's 6.58 percent to 6.59 percent. The average for the 15-year FRM rose slightly as well. The popular product came in at 6.22 percent, up from the previous week's average of 6.21 percent. Alternatively, short-term rates were down. One-year Treasury-indexed ARMs averaged 5.67 percent last week, down very slightly from last week when it averaged 5.68 percent.
Despite minor changes in the Freddie Mac survey, there were a couple of big stories last week that concerned investors. In the first part of the week, Fed Chief Ben Bernanke was the topic of conversation. As you may remember, two weeks ago, in front of Congress, Bernanke made the comment that the Fed might consider taking a hiatus from its rate hiking spree. This was taken by the market to mean that the Fed might be finished with their monetary tightening campaign. Apparently, Bernanke did not mean that at all. In response to the media interpretation, he told a CNBC reporter that investors and the media had misunderstood his message. In response to Bernanke’s clarification, the markets and mortgage rates gave back the gains the comments had provided.
Another important story came with Friday’s Employment report. The Employment report is one of the more important measures of economic health, and it is followed very closely. This particular release was no different. Wall Street predicted job growth at 200K, but the US added just 138K new jobs in April. Additionally, there was a small downward revision to the March figures as well. In many cases, a drop-off in job growth would result in falling mortgage rates. However, the report also showed an increase in Average Hourly Earnings (or wages). Since, presents signs of inflation, rates ended up rising as a result of the report.
There is nothing of import on the Economic Calendar until the Fed meeting on Wednesday. Wall Street is fairly certain that the Fed will raise rates another 25 basis points to 5.00%. As always, the Fed’s statement will be carefully analyzed for clues about future policy. If borrowers can lock their rates before Wednesday, it is highly recommended. It is never wise to needlessly float rates through a Fed meeting.
Thursday and Friday will be busy days as well. Retail Sales will come out Thursday morning, and this can have a pretty big impact on the markets. Consumers make up 70% of economic activity. That same day, there will be an auction of 10-year Treasuries. Bond investors will closely monitor the level of buying from foreigners. Foreign demand for bonds has kept them low for the past several years. Both Trade Balance and Consumer Sentiment typically have little impact on the markets, but they will be worth watching on Friday.
posted by Vincent Biondillo @ 9:15 AM
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