Daily Rate Lock Advisory

Indexes Affecting Rate Lock

Low

Positive

Treasury Auctions (5,7,10,20,30 year)

Yesterday’s 7-year Treasury Note auction went a bit better than Wednesday’s 5-year Note sale. The benchmarks we use to gauge investor demand for the securities showed yesterday’s sale drew a little stronger investor participation than Wednesday’s auction. We did see a modest reaction in the broader bond market after results were announced at 1:00 PM ET, but it wasn’t enough to cause an intraday improvement in rates yesterday afternoon.

High

Negative

Producer Price Index (PPI)

This morning’s release of January’s Producer Price Index (PPI) revealed wholesale inflation was much stronger than expected last month. The overall PPI rose 0.5% for the month while the more important core data that excludes more volatile food and energy costs spiked 0.8%. These readings greatly exceeded predictions of 0.3% for both and follow increases of 0.4% and 0.6% respectively in December.

High

Negative

Producer Price Index (PPI)

The year-over-year numbers weren’t much better with the overall reading at a 2.9% annual rate. This was slightly softer than December’s 3.0%, but stronger than the 2.6% that was expected. Worse yet, the core reading that is more closely watched rose from December’s 3.3% to 3.6% last month when analysts were expecting to see it have slowed to 3.0%.

High

Negative

Inflation News

We are hard pressed to find anything in the data that is good news for bonds or mortgage rates. Rising inflation makes long-term securities less appealing to investors because their future fixed interest payments are less valuable to investors. It also not only makes another Fed rate cut in the near future much less likely, but increases the possibility of them moving key rates higher to prevent inflation from rising further. Yes, these type of inflation numbers make a rate hike more likely the Fed’s next move than a rate cut.

Medium

Positive

General Bond Trends

Today’s move in bonds has the benchmark 10-year Treasury Note yield below 4.00% for the first time since November. This is very good news for mortgage rates, assuming it can hold below that level. The fact we saw improvement in bonds and a break below what is considered to be an important threshold of 4.0% in the 10-year Note is quite surprising on a day that data shows inflation is moving away from the Fed’s 2.0% goal instead of towards it. We may be seeing stock funds being shifted into bonds as a safe haven from the selling in stocks. The key question is whether or not this pattern will continue or reverse course next week. When it fell below 4.00% in November, preceded by multiple times in October, each move was short-lived. They were all followed by a change in direction that brought it back above that level almost immediately. Staying below would be good news for mortgage shoppers because mortgage rates tend to track bond yields.

High

Unknown

ISM Index (Institute for Supply Management)

Next week has several major economic reports scheduled for release, starting with February’s ISM manufacturing index late Monday morning and ending with February’s Employment and January’s Retail Sales reports early Friday morning. There are also a few moderately important reports that will be posted in between. Look for details on all of next week’s activities in Sunday evening’s weekly preview.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Treasury Auctions (5,7,10,20,30 year)

Producer Price Index (PPI)

Producer Price Index (PPI)

Inflation News

General Bond Trends

ISM Index (Institute for Supply Management)

Float / Lock Recommendation