Brighton Condominiums

U.S. Treasury securities began Thursday to the upside, bolstered perhaps by the increase in first-time jobless claims. But buying soon turned to selling as bond traders digested yet another statement by a Fed official - this time from Kansas City Fed president Hoenig, who cited rising wages and commodity prices as reasons to rein in inflation. Later in today's session Dallas Fed president Fisher reaffirmed his Tuesday message regarding the Fed's vigilance in controlling inflation, which would necessitate further short-term rate hikes.

Fed officials have been stumping all week, preparing the markets for another two rounds of credit tightening, and the messages have weighed on the markets. Traders also exercised caution due to Friday's September employment report. When the markets closed, Treasury yields, which move in the opposite direction of prices, had ticked up in the wake of steady selling. But the increase was not strong enough to move mortgage rates far from previous levels.

First-time unemployment claims rose to a higher-than-expected 390,000 for the week ended Sept. 30. According to the Department of Labor, 363,000 claims have been filed thus far by victims of hurricanes Katrina and Rita. The four-week moving average, which smoothes volatility, edged up to 404,000 -- above the 400,000-mark that indicates a tight labor market. Continued claims, people collecting benefits for more than one week, also rose to 2.92 million

Inflation Concerns and Earnings Warnings Tumble Stocks

Stocks suffered another setback - the fourth down day for most of the major indexes -due to concerns about inflation, further rate hikes and now some earnings warnings. Wall Street rebounded early on Thursday from a weeklong slide, but the weight of the warnings and additional comments by Fed presidents Hoenig and Fisher had their way with the markets.

Retailers today presented mostly positive reports on same-store sales for September, and there were other Dow Jones Industrials with upbeat news that watered down the losses. But at the closing bell only nine components were in positive territory, led by GE. An increase in the company's buyback program paired with higher guidance for third-quarter and full-year earnings sent the stock up 2.78 percent. Boeing benefited from a $181-million order from Austrian Airlines, adding 1.3 percent. Procter & Gamble and Johnson & Johnson gained 1.6 percent and 1 percent, respectively, while Hewlett-Packard led the Dow's list of losers, shedding 2.1 percent. Altria and Caterpillar each gave up 1.8 percent, with Caterpillar falling due to downgrades of its competitors.

The Nasdaq closed at its lowest level since July 6, with some of the bellwethers taking heavy hits. Qualcomm and JDS Uniphase each surrendered more than 2 percent on the day, and Dell lost more than 2.8 percent, as concerns about inflation and rate hikes dug in. Intel and Oracle each lost more than 1 percent. Cisco Systems was the only bellwether to add more than 1 percent, posting a 1.3 percent gain, although Yahoo! almost hit the 1-percent mark. Microsoft and Ericsson suffered only slight losses.

At closing:

The Dow 30 Industrial Index fell 30.26 points (-0.29 percent) to 10,287.10; the Nasdaq Composite index slid 18.94 points (-0.90 percent) to 2,084.08, and the benchmark Standard & Poor's 500 Index lost 18.08 points (-4.9 percent) to 1,191.49.

The 30-year Treasury bond was down 15/32 in price with the yield rising to 4.59 percent from 4.57 percent on Wednesday.

The 10-year Treasury note fell 7/32 in price with the yield rising to 4.37 percent from4.35 percent on Wednesday.

The 5-year Treasury note lost 3/32 in price with the yield rising to 4.23 from 4.21 percent on Wednesday.

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 5.739 percent from 5.742 percentat Wednesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.337 percent from 5.358 percentat Wednesday's close.

Coming Up:

The big news on Friday is the September Employment Report, the most-anticipated of the economic indicators. Analysts are expecting a decline in non-farm payroll jobs - the first since May 2003. Estimates are all over the map, however, ranging from a loss of 129,000 jobs to as many as 200,000. These numbers will likely be subject to big revisions, however, due to the impact of the hurricanes. A loss of jobs at the high end of the range might give Treasuries a little boost, but this is a tough one to call. New jobs in August hit 169,000, and the unemployment rate came in at 4.9 percent. This number is expected to escalate to 5.1 percent, but it is taken from a separate survey.

Two additional reports will pale compared to the jobless numbers. There are wholesale inventories for September and the August report on consumer credit. Inventories are expected to rise 0.4 percent - a big increase over the minus 0.1 percent reading in August. Consumer credit is also expected to swell to $7.5 billion in August - close to double the $4.4 billion in July.

Treasury yields rose slightly today, but it is unlikely that mortgage rates will move any higher -- at least until traders have scoured the employment report.

Carolyn Siegel

carolyn@interest.com

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