Mortgage rates resist inflation fears from increased jobs, Fed advisory

It's been a tough week for U.S. Treasury securities, but in spite of negative pressures they have held firm. Another big increase in jobs in May spurred selling, and heightened the possibility of a Fed rate hike this month.

Pressure on Treasuries continued after Fed Chairman Alan Greenspan said the Federal Reserve is prepared to "alter rates at whatever pace is necessary to maintain stability." A drop in oil prices, which had hit record highs, took some of the pressure off, but further signs of inflation brought sellers out again. Although Treasury yields have risen, mortgage rates held steady.

The 30-year fixed-rate mortgage (based on zero discount points) held at 6.125 percent, while the 15-year fixed-rate remains just below 5.5 percent. The introductory rate on the volatile one-year adjustable-rate edged to just above 3.625 percent.

Despite rate stability, mortgage applications dropped, according to the Mortgage Bankers Association. For the week ended June 4, purchase applications slid 6 percent while refinances fell 13.9 percent, accounting for only 33 percent of mortgages.

Economic news was lean, but what there was moved the markets. The often-ignored U.S. import/export price index took center stage with prices in May surging. Import prices rose 1.6 percent, twice what analysts had expected. Even when high-priced petroleum products were excluded the index rose 0.4 percent.

A strong rebound in the global economy is raising the specter of inflation and putting pressure on fixed-rate assets, such as Treasuries. Prices of exports also rose 0.3 percent. Wholesale inventories fell unexpectedly in May, sliding 0.1 percent as sales were up 0.8 percent. First-time jobless claims rose by 12,000 and the four-week average hit a seven-week high at 346,000.

Economic news will be plentiful due in part to schedule changes brought about by market closures on the national day of mourning for President Reagan. The producer price index for May, an inflation measure, was delayed for technical reasons, and the U.S. trade deficit for April will be rescheduled.

In addition, retail sales, housing starts, manufacturing data and the consumer price index which checks inflation at the retail level are on the docket.

Interest.com is a national publisher of mortgage rates and information.

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