WeeklyBasis 04/10/06: Why Rates Have Increased Recently

Fixed and ARM rates are up another .2% this week, making the last two weeks one of the more volatile periods in the past 18 months. Here’s some context to help explain things to your clients: Mortgage rates are moving in reaction to bond markets, not Fed actions. The Fed has been consistent in moving up overnight rates very slowly, so the real reason for this current rise is that bond markets are finally listening to the benchmark Fed Funds Rate. The Fed Funds Rate has gone up 3.75% since June 2004, while bond yields have been relatively flat during most of this period. It’s only now that bond yields are finally coming up – and mortgage rates are following. This week is light on data releases, so markets will be trading mostly on corporate earnings reports as well as Retail Sales and Consumer Sentiment data on Thursday. Unless earnings are blistering, I don’t expect further bond yield (and mortgage rate) spikes. The 10-yr Treasury yield is just below 5%. And I think traders are likely to hold this rate around its current range until they get more rate signals from the Fed at the May 10 FOMC meeting. Like I said last week: I think we’ve still got some relief coming in the next 1-2 months when the Fed signals they’re done intervening.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.5% (6.64% APR)
10/1 ARM: 6.5% (6.64% APR)
5/1 ARM: 6.25% (6.4% APR)

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