WeeklyBasis 3/13/10: Inflation and Fed Watch Next Week

Rates rose about .125% this week on better than expected retail sales figures for February and mixed market reception of 3yr, 10yr, and 30yr Treasury auctions. The longer-dated auctions compete directly with mortgage bonds for attention, and the paltry reception of these new issues caused mortgage bonds to trade lower—when bond prices drop, rates rise.

The debate still rages about the direction of rates when the Fed winds down it’s $1.25t 15-month mortgage bond buying program at the end of this month. I’m still of the view that rates could rise by about 0.5% by summer. Other estimates call for much higher, but I don’t think any higher is warranted because it would short out a housing-led economic recovery, , and the Fed would in fact have to step in with more rate stimulus as they’ve said they would.

The estimates that call for higher rates justifiably cite inflation as a big concern. Next week, we will get the inflation outlook along with any further mortgage bond buying thoughts directly from the Fed following their FOMC meeting Tuesday—we’ll also get their take on overnight Fed Funds and Discount rates. Then we will get the latest business and consumer inflation data with Producer Prices Wednesday and Consumer Prices Thursday. Mortgage bonds had three straight down days through Friday this week, so it will take next week’s Fed and inflation data to solidify this market sentiment or perhaps turn it around. Until then, ultra low rates speak for themselves.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.875% (4.99% APR)
5/1 ARM: 3.375% (3.49% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5% (5.12% APR)
FHA 30 Year: 5% (5.14% APR)
5/1 ARM: 4.375% (4.49% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.75% (5.87% APR)
5/1 ARM: 4.75% (4.87% APR)