WeeklyBasis 01/30/06: Yield Curve Flat With Overnight & 10yr Rates Equal

As expected, rates open this week only slightly higher. This is a huge week for rates, beginning Tuesday with the year’s first and Alan Greenspan’s last Fed meeting, where we can expect the overnight Fed Funds Rate to go from 4.25% to 4.5%. This would put Fed Funds and the 10-yr Treasury bond yield at the same level. This is what’s known as a flat yield curve.* If the Fed keeps going in March and pushes short rates above long rates, the yield curve could invert, and every other time in recorded history that the yield curve has inverted, it was followed by a recession. The other critical data release this week is Friday’s jobs growth report, which is the broadest indicator of economic strength, and always moves markets. There’s also lots of manufacturing and consumer data due between Tuesday and Friday. It’s going to be a volatile week, but it should set the tone for rate markets for the next couple weeks.

*The Fed Funds Rate and 10-yr Treasury yields are broad benchmarks for all types business and consumer rates, but the most important and precise proxy for intermediate ARMs and 30yr fixed mortgages are mortgage bond yields.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.125% (6.265% APR)
15 Year: 5.875% (6.015% APR)
5/1 ARM: 6.125% (6.275% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.375% (6.515% APR)
15 Year: 6.125% (6.265% APR)
5/1 ARM: 6.125% (6.275% APR)