The accompanying statement began by stating that inflation is currentlycontained, but that due to rising energy costs and other pricepressures, further firming may be needed. This was in keeping with Fedchairman Ben Bernanke's previous statement that future rate hikes wouldbe data-dependent.

The news ignited selling in the financial markets, with Treasury pricesfalling and their yields, which move in the opposite direction ofprices, beginning to rise. The Dow Jones industrials joined in thesell-off, dropping sharply, and the Nasdaq is edging down.

More details will follow.

Mortgage rates hold ahead of Fed
Submitted Mar 27 2006 4:50PM CST

U.S. Treasury securities weathered a session of moderate selling on Monday -- the day before the Fed is to announce its latest decision on interest rates. Concern about what the Federal Open Market Committee will or will not say about future interest-rate increases dampened enthusiasm for buying. And a weak auction of two-year notes did nothing to boost spirits. Pundits seem to agree that traders were loath to step into the bond markets the day prior to the Fed decision.

Although the Fed is expected to raise short-term rates by 25 basis points, which would be the 15th consecutive such move, there is no clear consensus regarding credit tightening down the line. This leaves the accompanying statement the focal point for Tuesday, as traders hope for clarification about rate-hike intentions. Fed Chief Ben Bernanke, who is chairing his first meeting, has said, however, that future rate hikes will be data-dependent.

Steady selling today sent Treasury yields, which move in the opposite direction of prices, up -- erasing some of Friday's gains. Mortgage rates, which are based on yields, ticked up with them, but not enough to substantially change them.

Stocks look for direction

Stocks also traded with uncertainty due to lack of guidance. Like bond traders, investors on Wall Street are reluctant to make big moves prior to tomorrow's announcement. The Dow Jones industrials fared the worst, in spite of Citigroup's bullish outlook on metals, which pushed Alcoa up 1.9 percent. Others benefiting were Phelps-Dodge and Inco. Airlines, gold and transportation shares also moved up, while drugs, utilities, oil and oil services stocks had a tougher day. Oil was down most of the session, but rallied late in the last hour or so to close at $64.29 a barrel -- up 13 cents.

The Dow Jones industrials were weighted heavily to the downside, with only about one-third of its 30 components closing in positive territory. Alcoa and GM, with a 1.3 percent gain on continuing progress on negotiations with Delphi, were the only two to crack the 1-percent mark, although Intel rose 0.8 percent on a positive broker outlook. Other gains were modest. The same could be said for losses, as only Altria, with a 1.3 percent decline, and Honeywell, which dropped 1 percent, suffered big setbacks. Other losses were slim.

Lucent continued to climb on its merger talks with Alcatel, supporting the networking sector. Sirius Satellite Radio Inc., moved up on an upgrade, and then tumbled to close in negative territory. Circuit City Stores rose on its upgrade and held, with a 1.6 percent increase. The Nasdaq traded in positive territory almost all day, but gains were lackluster. Cisco Systems helped with a 1.5 percent gain, as did Intel, but Ericsson and Yahoo! pulled the other way with losses of 2.2 percent and 1 percent, respectively.

As of 4 p.m. EST:

The Dow Jones industrial index closed down 29.86 points (-0.26 percent) to 11,250.11; the Nasdaq composite gained 2.76 points (+0.12 percent) to 2,315.58, and the Standard & Poor's 500 index fell 1.34 points (-0.10 percent) to 1,302.95.

The 30-year Treasury bond closed down 19/32 in price with the yield rising to 4.72 percent, from 4.69 percent on Friday.

The 10-year Treasury note closed down 8/32 in price with the yield rising to 4.69 percent, from 4.67 percent on Friday.

The five-year Treasury note closed down 4/32 in price with the yield rising to 4.68 percent, from 4.66 percent on Friday.

The two-year Treasury note closed down 1/32 in price with the yield rising to 4.73 percent, from 4.71 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 was at 6.125 percent, up from 6.111 percent on Friday.

The 15-year conventional fixed-rate mortgage was at 5.739 percent, up from 5.725 percent on Friday.

Coming up:

Although the Fed meeting on Tuesday -- the first under the chairmanship of Ben Bernanke -- and what the Fed says about future interest-rate hikes will have a big impact, the March consumer confidence report is also due and could move the markets. Analysts are expecting confidence to edge downward just a tad to 101.5 from the 101.7 recorded in February.

It is unlikely the Fed will tip its hand regarding future rate decisions, which would leave the markets in the dark until the May 10 meeting. Treasuries could be under light selling pressure prior to the statement and rally if it appears that more rate hikes are not imminent.

Overnight and into Tuesday morning, mortgage rates will likely hold close to present levels.

Carolyn Siegel

Carolyn@interest.com

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