THE BASIS POINT

WeeklyBasis 05/16/05: Fixed is Fixed, ARMs Down

Rates/Commentary, week of May 16, 2005. Fixed rates are steady over last week and ARMs are down about .125% as mortgage bonds and especially Treasury bonds have rallied. Despite the Fed raising the overnight bank-to-bank lending rate by 2% since last June, the open markets are not following this benchmark rate. Markets trend have driven investors to Treasury and mortgage bonds: trends like once-sterling GM and Ford bonds being downgraded; United Airlines dumping it’s pension fund and potentially leaving that burden to taxpayers; and a lack of liquidity in the $1 trillion hedge fund arena. So if mortgage and Treasury bond prices go up, their yields fall. And then rates fall. As for this week, it’s all about inflation watch with Consumer Prices (CPI) and Producer Prices (PPI) on Tuesday and Wednesday. The point of Fed intervention is to stave off inflation – slow the money supply with higher rates, and keep prices from rising too fast. So for now we’ve had the best case scenario, where the Fed is doing it’s job but rates are still staying low for our clients. This inflation data will be key. If inflation is lower than expected, we’ll see rates dip even lower. I will keep you posted.

Conforming ($200,000 – $359,650) – NO POINTS
30 Year: 5.625% (5.765% APR)
15 Year: 5.25% (5.39% APR)
5/1 ARM: 5.25% (5.40% APR)

Jumbo ($359,651 – $650,000) – NO POINTS
30 Year: 5.875% (6.015% APR)
15 Year: 5.25% (5.39% APR)
5/1 ARM: 5.25% (5.40% APR)