THE BASIS POINT

WeeklyBasis 01/08/07: Happy New Year

Hi everyone, welcome to my first WeeklyBasis of 2007. There’s not much spread between longer-term fixed and shorter-term ARM rates. This is because the Fed Funds Rate – an overnight rate that’s a benchmark for shorter-term loans – is currently higher than mortgage and Treasury bond yields which serve as benchmarks for longer-term loans. The Fed Funds Rate is adjusted manually, and the Fed’s first of 8 rate-setting meetings for 2007 is on January 30. This is when the Fed will send it’s first signal to the openly-traded bond market about their view of rates. But so far markets think rates should be lower than Fed officials do.

When comparing how rates begin this year versus how they began 2006, fixed rates are .125% lower and ARM rates are .25% higher. Not bad since the Fed Funds Rate rose by a full 1% during 2006. As for rates this week, the biggest data affecting market is the US Trade Balance Wednesday and December Retail Sales Friday. We also might get some market reaction to Bush’s Iraq strategy speech on Wednesday.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.125% (6.265% APR)
10/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 6.125% (6.275% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
10/1 ARM: 6.375% (6.515% APR)
5/1 ARM: 6.25% (6.4% APR)