Mortgage Headlines
Mortgage Rates Hold at Higher Levels
It was the worst quarter for U.S. Treasury securities in more than a year. Prices fell as traders fretted about the recurrence of inflation, while yields, which move in the opposite direction of prices, climbed. The steady increase in yields over the past three months sent the rate on the 30-year fixed-rate mortgage to 5.667 percent, up from 5.375 percent on July 1. Higher oil prices and repercussions from the recent hurricanes have spawned inflationary pressures that won't go away. And the Fed has vowed to keep raising short-term interest rates to keep inflation contained. Fed rate hikes paired with inflation is the 'worst case scenario' for bond traders, and it doesn't sit well with mortgage lenders, either. Higher yields have resulted in higher mortgage rates across the board.
Friday's economic reports did not provide the Fed with an excuse to change direction. Personal Spending in August rose 0.5 percent -- more than the 0.3 percent increase in August and better than the 0.3-percent increase that was forecast. Income, however, rose 0.1 percent - the same as July -- when a 0.3-percent decline was expected. The problem in this report sprang from the inflation component, which rose 0.5 percent - the largest increase in five years. Any sign of inflation spurs selling in bonds. Likewise, the Chicago Purchasing Managers Institute (PMI) index of business conditions for September soared to 60.5 from 49.2 in August. This positive turn was sharp enough to worry Treasury traders, but once again it was inflation that weighed. The prices-paid index within the report showed a sharp increase - rising to 76.3 from 62.9. This is the fourth straight month that prices have risen.
The University of Michigan final Consumer Sentiment Survey for September was unchanged from the preliminary reading of 76.9, as expected, but it was down significantly from the 89.1 posted at the end of August. Rising energy prices and concerns about the economy in the aftermath of the hurricanes left respondents uneasy about the present and the future, as well.
Stocks Beat the Odds - Post Gains in September
A historically poor month for Wall Street turned into a winner for the Dow Jones Industrials and S&P 500, although the Nasdaq closed flat. For the quarter and the week, however, all stock indexes posted gains. A strong PMI reading and a decline in oil prices sent 17 Dow components higher, led by Procter & Gamble. The personal products giant gained 2.3 percent today when the FTC approved its purchase of Gillette. Four other components added more than 1 percent, with Boeing getting a boost after signing a contract with the machinists' union. DuPont, SBC, and Caterpillar - all of which have been under selling pressure - came out winners today. Of the 13 Dow members that closed negative, only Exxon and JP Morgan lost more than 1 percent. Although there are no homebuilders among the Dow Industrials, they had a good session, sending the Dow home construction index up 1.6 percent.
Chips boosted the Nasdaq, with Micron Technology adding 9 percent on an unexpected quarterly profit due to increased demand for its high-margin sensors and flash memory chips. And National Semiconductor rose 3 percent after announcing increased quarterly dividends. Although both companies trade on the NYSE, they can influence the tech-heavy Nasdaq, and today they did.
Once again, however, JDS Uniphase led the tech bellwethers with a 3.74-percent increase, while Sun Microsystems and Yahoo! rose more than 1 percent each. Although IBM, Microsoft, Dell and Qualcomm closed in negative territory, their losses were slim.
At closing:
The Dow 30 Industrial Index rose 15.92 points (+0.15 percent) to10,568.70; the Nasdaq Composite index climbed 10.47 points (+0.49 percent) to 2,151.79, and the benchmark Standard & Poor's 500 Index gained 1.13 points (+0.09 percent) to 1,228.81.
The 30-year Treasury bond fell 11/32 in price with the yield rising to 4.56 percent from 4.54 percent on Thursday.
The 10-year Treasury note fell 8/32 in price with the yield rising to 4.33 percent from 4.30 percent on Thursday.
The 5-year Treasury note fell 6/32 in price with the yield rising to 4.19 from 4.14 percent on Thursday.
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 5.667 percent from 5.678 percent at Thursday's close.
The 15-year Conventional Fixed-Rate Mortgage was at 5.261 percent from 5.258 percent at Thursday's close.
Coming Up:
Economic reports next week are sparse, but two are highly influential. Monday's ISM index of manufacturing conditions for September can have major impact on the markets, as growth in the manufacturing sector is key to a healthy economy. Analysts are expecting the ISM to edge down to 53 from the 53.6 reading in August. But bond traders will be looking inside the report for signs of inflation. Also on tap is construction spending for August. Analysts are forecasting a 0.6-percent increase after spending came in unchanged in July.
Over the weekend and into Monday mortgage rates will likely continue to move up in response to Friday's sell-off in the bond market.
Carolyn Siegel
carolyn@interest.com
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