Rate cut disappoints Treasury buyers

The 25-basis-point rate cut by the Federal Open Market Committee was a disappoint- ment to those who had been buying U.S. Treasury securities in the hope that the Fed would cut rates by 50 points.

Even though the Fed funds rate is now at its lowest level since 1958 and the Fed left the door open for another cut this summer, traders dumped bonds, sending prices down and yields up. The yield on the benchmark 10-year Treasury note, which lenders use to set mortgage rates, rose to levels not seen since mid-May and sent interest rates back up after a steady drop.

The 30-year, fixed-rate mortgage (based on zero discount points) edged up to below 5.25 percent, while the 15-year, fixed-rate mortgage remained just below 4.625 percent. The introductory rate on the one-year adjustable-rate mortgage fell to just above 3.5 percent.

Mortgage applications were down for the week ending June 20. Purchases fell 1.9 percent, and refis declined by 10.5 percent.

Economic news was mixed. New-home sales rose by 12.5 percent to an annualized record rate of 1.12 million units, while existing home sales climbed to a healthy 5.8 million units. Good news also stemmed from the labor front with first-time claims falling to 404,000 -- the lowest level since March 22.

May durable goods disappointed as orders for computers, machinery and autos were below forecasts. The final first quarter GDP was also weaker than expected.

The financial markets will have much to deal with during the holiday-shortened week. There will be a lot of data on the manufacturing sector, employment numbers for June will be released, and stocks will react to corporate earnings warnings that usually precede upcoming quarterly earnings reports. Treasuries will react to stocks and economic reports, but they have a long way to go to recoup the huge losses sustained in the wake of the rate cut.

Bill Steele is financial editor of Interest.com -- a national publisher of mortgage rates and information.

Real Estate home