Rates can’t mount recovery after today’s inflation & manufacturing data

Rates are holding at the 5% range today after flat consumer inflation data and improving sentiment in the manufacturing sector. November consumer prices were up .1% versus October and 1.1% higher than November 2009. Excluding volatile oil and food costs, “Core” PPI for November was up .1% versus October and .8% higher than November 2009. The Fed’s Empire State Manufacturing Survey today showed an improving six-month outlook for manufacturing, and it also showed that manufacturing prices paid and received are both rising. So while November Consumer Prices were flat today, this manufacturing pricing data reminds bond markets that yesterday’s rise in producer inflation must be taken seriously.

That’s why mortgage bonds can’t mount a rally today following yesterday’s massive selloff that brought rates up to the 5% mark. Fine print: 5% is today’s level for a single family home loan up to $417k. Rates higher for larger loan amounts and condo loans.