THE BASIS POINT

WeeklyBasis 04/03/06: Stock Gains Push Rates Higher

Rates are up about .2% this week largely because investors are dumping bonds today to fuel a large stock rally. This first trading day of 2Q is also being driven by sentiment that the Fed is near the end of their tightening cycle. This belief has yet to make its way into bonds, as indicated by a near 4-year high on the 10-year bond yield. 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.

This week, the biggest news is Friday’s jobs growth and wages report. Wages account for two-thirds of business costs, so it’s an important indicator of inflation, and markets will be looking to see if we can continue to add jobs without adding inflation. If so, it could be yet another sign that the Fed is nearly done with their tightening. Yes, rates are higher this week, but I think we’ve still got some relief coming in the next 1-2 months when the Fed signals that Fed Funds are near neutral and the rate hikes are over.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.375% (6.515% APR)
10/1 ARM: 6.5% (6.64% APR)
5/1 ARM: 6.375% (6.525% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.5% (6.64% APR)
10/1 ARM: 6.625% (6.765% APR)
5/1 ARM: 6.375% (6.525% APR)