Brighton Condominiums

The bond markets were closed on Monday in observance of Columbus Day, leaving U.S. Treasury yields at Friday's levels. The stability in yields, which move in the opposite direction of prices, allowed mortgage lenders to hold rates steady. The status quo may change on Tuesday, however, as inflation fears gripped the equity markets and pushed the major indexes to five-month lows. Adding to this concern, economists surveyed said there was a chance that the Fed could become more aggressive with rate hikes in order to keep inflation at bay. Inflation erodes the value of fixed-rate assets, such as bonds. If these concerns carry through into Tuesday, Treasuries prices could come under intense pressure.

Stocks Beaten Down by Inflation Fears, Bad News

It was a down day on Wall Street, although trading was light due to the holiday. The three major indexes spent most of the session in negative territory and crawled deeper into the red as the afternoon wore on.

Delphi, a former GM company and auto parts maker, filed for bankruptcy protection and suffered a 57 percent loss. In addition, the bankruptcy left GM with heavy liabilities estimated to be in excess of $10 billion. GM stock plunged 9.9 percent, but the news weighed heavily throughout the auto industry. In a separate report, Futures broker Refco saw its shares dive by 45 percent on news that it CEO Philip Bennett was ordered to take leave when it was discovered that $430 million in receivables were owed by an entity that he controlls. Xilinx, a big name in chips, fell 15.5 percent after announcing it would miss on second quarter sales, putting pressure on semiconductors, and homebuilders' stocks also continued to slide. Crude oil lost a few cents putting pressure on oil and oil services companies, such as Exxon and Valero.

There was some good news, but it fell short of moving the markets in a positive direction. IBM and Dell received upgrades, and Wal-Mart and Home Depot got favorable mentions in Barron's over the weekend, pushing their shares up.

Ten Dow Jones Industrials managed gains, with Merck showing a 4-percent increase. Wal-Mart, which reaffirmed October sales, and DuPont each added 1 percent, and IBM came close to that. GM led the 20 Dow losers, with Honeywell, Exxon and Caterpillar posting declines near 1.8 percent. Another five components lost more than 1 percent, but less that 1.8 percent.

The Nasdaq was also hit by inflation fears, which resulted in gains by only four tech bellwethers. Dell led with a 2.3-percent gain, followed by Yahoo!, which added 1.1 percent. IBM and Oracle also closed in positive territory. Sun Microsystems headed the losers, falling 2.6 percent, followed by Ericsson with a 1.5-percent decline. Qualcomm, Cisco Systems and Microsoft each suffered small losses.

At closing:

The Dow 30 Industrial Index fell 53.55 points (-0.52 percent) to 10,238.76; the Nasdaq Composite index was down 11.43 points (-0.55 percent) to 2,078.92, and the benchmark Standard & Poor's 500 Index lost 8.57 points (-0.72 percent) to close at 1,187.33.

The yield on the 30-year Treasury bond held at 4.56 percent.

The yield on the 10-year Treasury note held at 4.37 percent.

The yield on the 5-year Treasury note held at 4.31 percent.

At 4 p.m. EDT, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.727 percent from 5.747 percentat Friday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.349 percent from 5.343 percentat Friday's close.

Coming Up:

The only report of consequence slated for Tuesday is the minutes for the Sept. 20 meeting of the Federal Open Market Committee, which will be combed for further insight into the Fed's thoughts about inflation. Last week, however, it became crystal clear via a number of speeches by Fed officials, that the Committee has no intention of easing its rate-hike policy due to the threat of inflation. The only other economic news comes in the form of two weekly surveys on national retail sales. These data have little impact.

Treasury yields remained unchanged due to the holiday, and mortgage rates held, too. But if the inflationary fears that wracked Wall Street on Monday creep into the bond markets on Tuesday, Treasuries will sell and yields will move higher. This could cause an up tick in some mortgage rates.

Carolyn Siegel

carolyn@interest.com

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