Billerica Condominiums

Two divergent economic reports pushed and pulled on U.S. Treasury securities on Wednesday. A bond-friendly reading on Durable Goods Orders for July rallied Treasuries as the markets opened, but strong New Homes Sales sent them back down. Another record high for oil prices had little effect, as traders believe that high energy prices could be a substitute for Fed rate hikes with regard to controlling economic growth/inflation. As a result, Treasury yields, which move in the opposite direction of prices, settled at yesterday's lower levels. This allowed mortgage lenders who base their rates on yields to continue edging them down.

Durable goods suffered their biggest decrease in 18 months, falling by an unexpected 4.9 percent when analysts predicted a 3.5 percent decline. Both numbers were substantially lower than the revised 1.9 percent increase posted in June. Even though durable goods orders, items meant to last more than three years, are sporadic, orders were weak across the board. This indicates to many that businesses are reluctant to make capital investments in the face of rising oil prices. When transportation, a volatile component of the report was excluded, orders for durables still fell 3.2 percent.

New Homes Sales provided another surprise of a more positive nature, rising to an annualized rate of 1.41 million units in July - a new record. This surpassed June data that was downwardly revised to 1.32 million units, and also topped estimates for 1.35 million in sales. This upbeat report erased earlier Treasury gains, as traders saw it as a boost to the economy. In a separate report, the Mortgage Bankers Association noted that applications to purchase fell 2.2 percent for the week ended August 19, while refis climbed 1.2 percent.

Oil, Durables Weigh on Wall Street

Oil set yet another record, rising $1.61 a barrel to close at $67.32. Concern about storms brewing in the Gulf of Mexico and their possible negative effect on oil production in the area was today's catalyst for the spike in prices. This increase continued to stir worries about the negative effect that oil prices will have on not only corporate earnings but consumer spending as well. The sharp drop in durable goods orders added to the bearish tone that couldn't be offset by strong new home sales. Homebuilders, which saw their stock prices plunge after Tuesday's disappointing Existing Home Sales report, regained most of their losses, but it wasn't enough to turn the markets around. The three major indexes closed at their lows of the session

The Dow Jones Industrials suffered the biggest setback, with only four components closing up. GM led with a 2.24-percent gain due to positive reports coming out of talks with union representatives. Merck gained close to 1 percent, while Hewlett-Packard and 3M did little more than break even. Interest-sensitive Caterpillar led the decliners with a 2.7 percent loss, but 13 other components slid more than 1 percent - some far more than 1 percent.

Losses on the Nasdaq composite were not as steep, but the tech-heavy index closed in the hole. Google recouped yesterday's losses on news that it would introduce instant message and voice message to compete with Yahoo!, AOL and Microsoft. This challenge didn't interfere with Yahoo!, which led the tech bellwethers with a 1.1-percent increase. JDS Uniphase was the only other bellwether to close positive, adding 0.7 percent. Three of the other seven fell more than 1 percent. RF Microdevices, not one of the bellwethers, added 8 percent on an upbeat report.

At closing: The Dow 30 Industrial Index fell 84.71 points or 0.81 percent to 10,434.87; the Nasdaq Composite index was down 8.34 points or 0.39 percent at 2,128.91, and the benchmark Standard & Poor's 500 Index slid 8.00 points or 0.66 percent to close at 1,209.59.

The 30-year Treasury bond was up 2/32 in price with the yield falling to 4.39 percent versus 4.40 percent at Tuesday's close.

The 10-year Treasury note was up 1/32 in price with the yield holding at 4.17 percent.

The 5-year Treasury note closed even in price with the yield holding at 4.03 percent.

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.604 percent from 5.636 percent at Tuesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.22 percent from 5.255 percent at Tuesday's close.

Coming Up

The only report due on Thursday is first-time unemployment claims for the week ended August 19. Although this report generally does not have a major impact, a big gain or decrease in claims can move the markets, especially as we near the release of the Employment Report for August, due Sept. 2. Analysts are expecting claims to fall by 6,000 -- coming in at an even 310,000. A decline of 6,000 or more claims could put downward pressure on Treasuries, as it could signal a more vibrant labor market. The opposite, of course, also could be true. Overnight and into tomorrow morning mortgage lenders might continue edging rates down to keep them in sync with lower Treasury yields.

Carolyn Siegel

carolyn@interest.com

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