Weekly mortgage rate update for 4-07-06

Mortgage rates jump

It was a volatile week in U.S. Treasury securities, with traders selling on some headlines and buying on other news. But they ended the week selling due a strong jobs report. Signs of economic strength not only in the U.S., but also in Europe and Japan, awakened fears of more credit tightening by the Fed and less foreign demand for government debt. On the other hand, there were indications of economic slowing, and in a series of speeches Fed officials suggested the end of its rate-hike cycle is near. On the whole, however, there were more sellers than buyers, and this forced Treasury yields, which move in the opposite direction of prices, upward. As a result, mortgage rates, which are based on yields, crept higher, with most rates being raised a notch.

The employment report for March showed a strong 211,000 jobs added to nonfarm payrolls and the unemployment rate, derived from a separate survey, ticking down to 4.7 percent. The good news from an inflation standpoint was that wages grew by a benign 0.2 percent. Bond traders are wary of rising employment and increasing wage levels -- both forerunners of inflation. The report did not change expectations for another Fed rate hike next month.

The week began with a substantial decline in the ISM index on March manufacturing conditions, which fell to 55.2 from 56.7 in February. The manufacturing sector has a major impact on economic growth. The ISM index on nonmanufacturing conditions, or the service sector, rose, but in both cases, the 'prices paid' index, which is an inflation indicator, was down on the month.

First-time unemployment claims for the week ended April 1 fell for the third consecutive week, dropping by 5,000 to 299,000. The more telling four-week average, which levels the field, also slid to 308,500. And continued claims - people collecting unemployment benefits for more than a week - fell to 2.44 million, the lowest level since February 2001.

Mortgage applications rose during the week ended March 31. According to the Mortgage Bankers Association, purchase applications rose 8.4 percent, while refis climbed 5.3 percent. The rate on the 30-year fixed-rate mortgage (based on zero discount points) is below 6.25 percent, while the 15-year fixed-rate mortgage is over 5.875 percent. The rate on the five-year, adjustable-rate mortgage climbed above 5.875 percent.

The coming week has releases compressed into two days - Wednesday and Thursday - due to the financial markets closing on Good Friday. Thursday will be the busier of the two, with retail sales for March, import/export price data, weekly unemployment claims and the consumer sentiment survey all due. Tuesday features the U.S. trade deficit, which often has only moderate impact on the financial markets. Looking at the upcoming reports, there is no reason to believe that mortgage rates will decline to any degree over the next several days.