Weekly mortgage rate update for 1-13-06

A volatile week for mortgage rates

U.S. Treasury securities weathered a couple of moderate sell-offs that sent the yield on the benchmark 10-year note to its highest level in three weeks. Yields move in the opposite direction of prices. The increase in yields influenced lenders to edge rates upward after a welcome dip in fixed and adjustable rates. But a flat day of trading, followed by bond-friendly economic reports, pushed yields back down, and mortgage rates followed.

Strong midweek economic reports from Europe caused traders to worry that foreign investments might become more attractive than U.S. Treasuries, and a lukewarm response to a Treasury auction of five-year notes supported that theory. But a successful auction of 10-year notes on Thursday and two weighty reports on Friday that were below forecasts brought buyers back in.

The December producer price index, or PPI, showed that underlying inflation remains under control. Although the PPI rose 0.9 percent, the core, which eliminates volatile food and energy prices, edged up by only 0.1 percent. The core rate is one thing the Fed watches when monitoring inflation. December retail sales rose by a tepid 0.7 percent, also taking pressure off the Fed.

The U.S. trade deficit in November narrowed unexpectedly to $64.2 billion from a revised $68.1 billion in October. A sharp drop in oil prices and an increase in exports -- up 2 percent on the month -- were the main reasons for the decline. In a separate report, U.S. import and export price indexes in December came in mixed, with import prices falling 0.2 percent due to declining oil prices. Export prices rose 0.1 percent.

First-time jobless claims rebounded for the week ended Jan. 7, after declining by 35,000 the previous week. Claims rose by a weaker-than-expected 17,000 to 309,000, while the more-closely watched four-week average fell to 311,500. In addition, wholesale inventories in December rose 0.4 percent, but sales fell by 0.7 percent.

Mortgage applications soared for the week ended Jan. 6, according to the Mortgage Bankers Association. Applications to purchase rose 9.3 percent, while refinances climbed by a better-than-usual 9.9 percent. The rate on the 30-year fixed-rate mortgage (based on zero discount points) remains at 5.875 percent, while the 15-year fixed-rate mortgage fell to just above 5.375 percent. The rate on the volatile one-year adjustable-rate mortgage slid to 4 percent.

The coming days are packed with economic reports that could move the markets. The consumer price index for December, a key report for Treasuries, checks for inflation at the retail level. Several reports on the manufacturing sector are also due. Strong data could affect the bond markets, as traders worry about economic growth perpetuating further rate increases. Housing starts and building permits for December also are on tap. If data are stronger than expected, results could put upward pressure on Treasury yields and therefore on mortgage rates. If reports come in on target, rates could hold near lower levels.

Carolyn Siegel

Carolyn@interest.com