Article Archive Article PDF

Mortgage rates on the rise

U.S. Treasury securities navigated some choppy waters over the past several days, forcing mortgage rates up on virtually all products. Heavy selling in Treasuries was ignited by fear that increases in global interest rates would draw funds from the debt market. The Bank of Japan, however, said it would keep long-term rates low. This provided a break in selling and flattened the yield curve, which had been inverted since January. Inversion often signals economic slowing or even recession. Strong job growth in February, however, spurred another round of selling and Treasury yields, which move in the opposite direction of prices, continued to climb, sending mortgage rates upward. There were 243,000 jobs added to nonfarm payrolls last month -- enough to keep the Fed on its rate-hike program. The unemployment rate, which is derived from a separate survey, rose to 4.8 percent.

Revised fourth-quarter productivity and costs raised eyebrows. Although revisions were small, year-over-year numbers showed productivity up only 2.9 percent in 2005 -- its slowest pace since 2001. On the other hand, labor costs rose 2.6 percent - the biggest increase since 2000. Labor costs are of major concern, as excessive wage gains could be flashpoint for inflation. Factory orders in January plunged due to a steep decline in aircraft orders. Excluding transportation, factory orders rose 1.6 percent -- the third straight increase. A jump in factory orders can lead to increased manufacturing, which could recharge the economic engine.

The U.S. trade deficit hit an all-time high in January, zooming to $68.5 billion - far stronger than expected. Energy prices, and especially a surge in the cost of oil, were largely responsible for the trade gap. The good news: exports also rose, but not as fast as imports.

First-time jobless claims for the week ended March 4 were up by a hefty 8,000 to 303,000. The more closely watched four-week average, which smoothes volatility, rose to 293,000. Continued claims -- benefits paid to people out of work for more than one week - climbed to 2.51 million. This report was a positive for bond traders, who are concerned a tight labor market could lead to wage inflation.

Purchase applications crept down, while refinances edged up for the week ended March 3, according to the Mortgage Bankers Association. The rate on the 30-year fixed-rate mortgage (based on zero discount points) climbed to 6.125 percent, while the 15-year fixed-rate mortgage rose to 5.75 percent. The rate on the five-year, adjustable-rate mortgage increased to 5.75 percent.

The next few days are packed with market-moving economic news. One of the biggest reports is the consumer price index, an inflation indicator. Reports on retail sales, manufacturing, housing and consumer sentiment also could make waves. If the reports come in on target, it is likely that mortgage rates will hold high. If, however, the releases point to a slowing economy, rates could dip slightly.

Carolyn Siegel

carolyn@interest.com