Rates Continue at 2011 Lows
Last week, Treasury yields (and mortgage rates) were close to lows for the year as many view that slow economic growth will not be able to trigger any meaningful inflation in the short term. Weaker than expected housing starts and flat industrial production since March were among the contributors to this view last week. With less concern over inflation, mortgage rates are less likely to materially rise in the short term.
Existing home sales showed a very modest increase last month, but a large portion of these sales are distressed sales, leading many to believe that housing prices will remain suppressed, at least in the short term. MBA mortgage applications jumped 7.8% last week, with the increase attributed to refinance activity.
As the week drew to a close, some of the drop in rates was paired back as jobless claims came in a bit lower than expected. As reinforced in the minutes issued from the last Federal Reserve meeting, the Fed is scheduled to end their second “Quantitative Easing” program next month, which will mean less investment by the Fed into Treasuries and mortgage-backed securities. As the markets are still working to digest the impact of this move, it’s arguable that this is starting to put a very slight upward pressure on rates.
As we kick off the last full week of May, most news centers around Europe and their continuing debt crisis. Italy’s credit rating was downgraded by Standard & Poors, which helped contribute to a small improvement in rates right out of the gate this morning, as Treasuries look more attractive to international investors.
For the remainder of the week, keep a close eye on the 2nd revision to Q1 GDP. If this is revised to show noticeably higher growth, it may stimulate some economic momentum that raises rates slightly. April New Home Sales, Durable Goods Orders and the Core PCE price index are among the other domestic economic indicators that could help indicate the strength of economic recovery.