Mortgage Headlines
Mortgage Rates Continue to Edge Up
U.S. Treasury securities didn't exactly rally on bland inflation news, and they accepted the big rise in first-time unemployment claims as a given. The regional manufacturing index stirred sellers, coming in a bit stronger than expected. But it was the Philly Fed survey on manufacturing conditions that really got U.S. Treasuries moving. The index plunged, which would normally excite bond traders, as it signals a slowdown in the manufacturing sector. But within the report one number jumped out: the prices-paid index soared, raising the specter of inflation. That was all traders needed to begin selling in earnest. The yield on the benchmark 10-year note, which began at 4.16 percent climbed to 4.23 percent, finally settling at 4.21 percent. The increase in yields, which are used as guides to set mortgage rates, forced lenders to begin edging rates up on many products.
On Wednesday all the focus was on the Consumer Price Index (CPI), but it came in right on target. The CPI rose 0.5 percent - the same as in July - and the core index, which excludes volatile food and energy prices, edged up by an expected 0.1 percent, duplicating July's outcome. Business Inventories for July surprised, falling 0.5 percent when a 0.1- percent increase was expected. Inventories from the previous month were unchanged. Business sales showed a good increase, however, rising 1.1 percent, eclipsing the upwardly revised 0.8-percent rise in June sales. First-time unemployment claims for the week ended Sept. 9 rose by 71,000 to 398,000 - the biggest one-week jump in a decade. This is the first report that shows the impact on jobs in the wake of Katrina. Current forecasts say that as many as 500,000 jobs might have been lost as a result of the hurricane. Continued claims, people collecting benefits for more than one week, rose to 2.59 million, and this number is expected to escalate.
But it was the regional manufacturing report from Philadelphia that made the difference. Manufacturing conditions in the mid-Atlantic region plummeted to 2.2 from a 17.5 reading in July. The report was grim from beginning to end, with significant declines in new orders and employment. But it was the potential for inflation in the prices-paid index that captured the attention of Treasuries, which fear inflation as it erodes the value of fixed-rate assets, such as bonds. Analysts were expecting the index to fall to 12.3. The NY Empire State index of manufacturing conditions also declined, dropping to 17 in September from 23 in August. Analysts were expecting a dip to 15.
Stocks Close Mixed
U.S. stock indexes wobbled into a mixed close on Thursday as the market continued to fret about the economic impact from Hurricane Katrina heading into Tuesday's FOMC meeting.
Erosion in crude oil prices plus the pullback in Treasury prices failed to give stocks much of a nudge in either direction, with some players still on edge about corporate performance in the face of an uncertain economic outlook.
Two airlines confirmed market expectations and filed for bankruptcy protection in nearly back-to-back actions late on Wednesday. Delta Air Lines ended up $0.04 or 5.63 percent at $0.75 on Thursday, while Northwest Airlines slid $0.99 or 52.94 percent to close at $0.88 after the action.
Some financial firm issues also performed weakly on Thursday amid concerns about their earnings outlooks. Among them, Bear Stearns lost $2.60 a share, or 2.46 percent, to $102.90, after earnings that matched expectations but which analysts said revealed that gains stemmed from cost controls rather than revenue upside potential.
Insurer UICI got a boost from news of a buyout by Blackstone Group. UICI stock rallied $5.03 a share, or 16.18 percent, to end at $36.11. McDonald's shares also gained ground Thursday, lifted by perceptions it has been oversold of late. MCD stock gained $1.09 or 3.37 percent to close at $33.45 a share.
At closing:
The Dow 30 Industrial Index rose 13.85 points (+0.13 percent) to 10,558.75; the Nasdaq Composite index lost 3.18 points (-0.15 percent) to 2,146.15, and the benchmark Standard & Poor's 500 Index gained 0.57 points (+0.05 percent) to 1,227.73.
The 30-year Treasury bond fell 1-1/32 with the yield rising to 4.51 percent from 4.44 percent at Wednesday's close.
The 10-year Treasury note was down 14/32 in price with the yield rising to 4.21 percent from 4.16 percent at Wednesday 's close.
The 5-year Treasury note lost 6/32 in price with the yield climbing to 3.99 percent from 3.95 percent at Wednesday 's close.
At 4 p.m. EDT, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:
The 30-year Conventional Fixed-Rate Mortgage was at 5.566 percent versus5.561 percent at Wednesday 's close.
The 15-year Conventional Fixed-Rate Mortgage was at 5.141 percent from 5.13 percent at Wednesday 's close.
Coming Up:
The only economic report scheduled for Friday is the University of Michigan's preliminary consumer sentiment report for September. This is the first insight as to how the consumer is coping since the advent of Hurricane Katrina. Analysts are expecting sentiment to fall to 84 from the 89.1 reading taken at the end of August. A drop such as this could boost Treasuries, which respond well to weak consumer appetite.
Mortgage rates today began to creep up in accord with Treasury yields. It is likely that rates will continue to edge up until something - maybe the U. of M. survey - turns things around.
Carolyn Siegel
carolyn@interest.com
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