WeeklyBasis 04/04/05: Rates Down, Prepare for Greenspan

Rates/commentary for the week of April 4, 2005. Fixed and ARM rates are down .125% this week, providing relief from the .375% uptrend of during March. Rates dropped Friday after the jobs growth report came in much weaker than expected (110k new non-farm payrolls vs. 225k projected). This is a signal to investors that the economy has some weak spots. So they buy into the security of bonds, driving the price up and driving yields (and mortgage rates) down. Many are saying that rates could hover in this lower range since there’s not a lot of economic data this week other than unemployment figures Thursday. But I think that while Monday and Tuesday will be fine for rates, Fed chairman Greenspan’s public comments Wednesday and Friday could change this. If he reiterates that inflation may be a threat, rates could bounce back up. His comments will also give traders something to think about as they begin to hedge in anticipation of the May 3 Fed meeting – as a reminder, markets tend to price in anticipated Fed Funds Rate adjustments weeks in advance. As a reminder, it’s a very orderly change. For some perspective, in the second quarter of 1994, mortgage rates jumped almost 2%. Monetary policy is much more sophisticated now than it was then, so even though Fed comments tend to stir markets, we don’t see that kind of outright volatility now.

Conforming ($200,000 – $359,650) – NO POINTS
30 Year: 5.875% (6.015% APR)
15 Year: 5.5% (5.64% APR)
5/1 ARM: 5.5% (5.65% APR)

Jumbo ($359,650 – $650,000) – NO POINTS
30 Year: 6.125% (6.265% APR)
15 Year: 5.75% (5.89% APR)
5/1 ARM: 5.75% (5.90% APR)