WeeklyBasis 2/13/2011: Inflation Frenzy!

Rates closed Friday 2/11 net even on the week, a nice break (despite wild daily swings) after rising .375% the week before. Rates could resume their rise this week in response to inflation reports from the U.S., China, and Great Britain. Inflation worries may cause investors to continue selling bonds, and home loan rates rise when mortgage bond prices drop in selloffs.

Below is a summary of the week’s key market moving data as well as single family home loan rates as of market close Friday. Condo rates are usually higher. Rates change throughout each day as mortgage bonds trade.

Market Data & Reactions Week of Feb. 14
The latest Chinese inflation readings hit Monday night (U.S. time). Annual consumer inflation is expected to rise from 4.6% to 5.3% and business inflation is expected to rise from 5.9% to 6.4%. China’s central bank has already been hiking rates to control these high inflation figures, and they’ve already caused U.S. rates to rise.

Also Tuesday we have Eurozone GDP expected weak at 0.4%, and January U.S. Retail sales expected flat at 0.5%. Even if these are as predicted, they’ll likely be overshadowed by British consumer inflation expected hotter at 4%, and the Empire State Manufacturing Survey which has been showing higher U.S. business inflation expectations.

And the U.S. inflation train chugs on Wednesday and Thursday with producer (PPI) and consumer prices (CPI). Annual producer prices at 4% are above the Fed’s 2% comfort zone, but 1.5% consumer inflation is tame. But business inflation is the key theme and PPI will be followed by the Philly Fed index, another manufacturing survey that’s been showing rising prices.

Two-Year Rate Perspective
Rates are up almost 1% from three months ago, but they’re now even with levels that consumers and bankers will all smiles about from January 2009 to March 2010. Then rates dropped to unsustainably low levels before rising again in November.

CONFORMING RATES ($200,000 to $417,000) 0 POINT
30 Year: 5.125% (5.24% APR)
FHA 30 Year: 4.75% (4.87% APR)
5/1 ARM: 3.625% (3.74% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) 0 POINT
30 Year: 5.375% (5.49% APR)
FHA 30 Year: 5.0% (5.12% APR)
5/1 ARM: 4.0% (4.12% APR)

JUMBO RATES ($729,751 to $2,00,000) 1 POINT
30 Year: 5.375% (5.49% APR)
5/1 ARM: 4.25% (4.36% APR)