This entry was posted on Friday, December 1st, 2006 at 3:18 pm and is filed under Mortgage Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Sacramento Mortgage Rates and Bond Market Update
It’s been an amazing week for mortgage rates. The 30 year conforming fixed rate ended the week around 6% at zero points; 5.75% with 1 point. That’s a rollback to December 2005 rates and 125 basis points lower than just a few months ago.
Actually, the fascinating part has been watching the bond market. I’m LOL as I write that (what a nerd). But out of habit after all these years, I rise each morning and have coffee with my “friends” on CNBC Morning Call. I particularly enjoy Rick Santelli broadcasting from the belly of the beast, the trading pit at the Chicago Mercantile Exchange. Bond market reaction to economic news just doesn’t get any more immediate than that.
So this week, Treasury yields fell dramatically, with the spread between the 2 year and 10 year Treasury Notes narrowing as the 2 year yield fell faster than the 10 yr. This means that bond traders think it likely that the Fed will cut short term rates in March. Mortgage rates follow Treasuries.
Behind the numbers. Leading off the week, Durable Goods Orders, showed a slowdown in manufacturing activity. The same morning, the University of Michigan Consumer Sentiment Index suggested an erosion in consumer spending. Tuesday’s GDP showed slowing economic growth, and the flagging retail sales figures confirmed what the consumer confidence reports had hinted at, with Walmart, Gap, Old Navy and others are reporting declining sales compared with last year. Forced to spend on early seasonal promotions, profits margins are thinning.
Fed Chairman Bernanke took the stage next with a fairly hawkish tone on inflation based on previous wage reports that appeared to be inflationary. Unfortunately, the words were no sooner out of the poor man’s mouth than the employee compensation figures were revised downward from 7.4 to 1.4, causing Ian Shepherdson, chief U.S. economist for High Frequency Economics, to comment, “You’d have thunk someone at the BEA could have called him…”.
Then on Thursday, the Chicago Purchasing Managers business barometer swung to 49.5, the largest economic contraction in 3 1/2 years and a departure from the expected increase. This mornings more closely watched ISM confirmed the trend established by the rest of the week’s economic reports and appeared to drive a nail into the heart of the inflation argument.
Bottom line. The economy is slowing, and it’s bigger than just the real estate pullback. The Fed’s handcuffs are off, and expectations are growing for a rate cut in March.