Mortgage Headlines
Mortgage rates move up
Another session of frantic selling in U.S. Treasury securities sent yields, which move in the opposite direction of prices, up further on Monday. This is the fourth straight day of heavy selling in the bond markets. Traders have been consumed by a rate increase by the European Central Bank and the possibility of more increases on a global scale -- especially by Japan. Big offerings of corporate debt are also competing with U.S. Treasuries for funds, and there are concerns already about an auction of 10-year notes on Thursday and how many indirect bidders, or foreign investors, the sale will attract.
Adding to the negative sentiment was the January report on factory orders, which, although negative, was stronger than expected. Orders were down 4.5 percent when analysts were expecting a 5.3-percent decline. The huge decrease in aircraft orders in January weighed on the report, but when transportation was excluded, orders actually rose 1.6 percent -- the third straight month of increases. This signals a likely need for manufacturers to ramp up production.
The yield on the benchmark 10-year note, which lenders use as a guide to set mortgage rates, continued to climb -- closing at 4.73 percent, its highest level in 20 months. Steadily rising yields have forced lenders to raise mortgage rates on most products.
Stocks fall on interest-rate worries
Wall Street opened to the upside on news that AT&T would purchase BellSouth for $67 billion in stock. Typically, AT&T stock fell -- down 3.5 percent -- and BellSouth rose 9.7 percent. The equity markets generally approve of such mergers, and this one had a positive influence, initially. The major indexes traded in positive territory right up to the last 90 minutes. When Treasury yields continued to climb, investors sold their stocks and took the cash. There was no rotation today. Even a drop in oil prices, which fell $1.26 to $62.42 a barrel couldn't boost stocks.
Rate-sensitive shares, such as Alcoa and Caterpillar, were down 2 percent and 1.8 percent, respectively, and led the Dow Jones industrials in losses. 3M also fell 1.3 percent. GM added 3.1 percent after announcing the sale of Suzuki, but other gains were slim.
The Nasdaq had another tough session, weighed down by concerns that higher interest rates will slow capital investment.
As of 4 p.m., EST:
The Dow Jones industrial index closed down 63 points (-0.57 percent) to 10,958.59; the Nasdaq composite lost 16.57 points (-0.72 percent) to 2,286.03, and the Standard & Poor's 500 index fell 8.97 points (-0.70 percent) to 1,278.26.
The 30-year Treasury bond closed down 30/32 in price with the yield rising to 4.72 percent, from 4.66 percent on Friday.
The 10-year Treasury note closed down 14/32 in price with the yield rising to 4.74 percent, from 4.68 percent on Friday.
The five-year Treasury note closed down 6/32 price with the yield rising to 4.75 percent, from 4.70 percent on Friday.
The two-year Treasury note closed down 1/32 in price with the yield rising to 4.76 percent, from 4.75 percent on Friday.
At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:
The 30-year conventional fixed-rate mortgage at 6.087 percent, up from 6.046 percent on Friday.
The 15-year conventional fixed-rate mortgage at 5.706 percent, up from 5.647 percent on Friday.
Coming up:
On Tuesday, a revision of fourth-quarter productivity and costs will be released, but revised reports seldom have the impact of the initial report. This may be the exception, however, as analysts are expecting productivity to come in at minus 0.1 percent -- a big increase from the negative 0.6 percent reported one month ago. All eyes will be on employee costs, as an increase in this component could stir worries of inflation.
Also on tap, consumer credit for January, which the markets generally ignore, and two retail sales reports for the week ended March 4. Except in times of important selling periods, such as Christmas or Easter, these reports are of little consequence.
Another hike in Treasury yields will likely keep mortgage lenders busy, as they will have to increase rates to keep pace with rising yields. Lenders have to offer investors interest rates that are higher than those on Treasuries, because there is more risk involved in buying mortgage-backed securities than buying Treasuries, which are basically risk-free.
Carolyn Siegel
Carolyn@interest.com
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