Rates hold firm under rising pressure

It's been a volatile week for U.S. Treasury securities. Strong economic indicators put pressure on Treasuries as traders worried about inflation in the economic recovery. The Fed calmed those fears when it held Fed funds rates at a 41-year low and said it was concerned about a lack of inflation.

The Fed added that it would hold interest rates at low levels for a considerable time. This report sparked a huge rally in Treasuries.

But an impressive increase in GDP ignited a big Treasury sell-off as traders felt better-than-expected economic news could influence the Fed to act more quickly. Despite the volatility in yields, mortgage lenders kept rates near levels of last week.

The 30-year fixed-rate mortgage (based on zero discount points) remains at 5.75 percent, while the 15-year fixed-rate mortgage fell to just above 5 percent. The introductory rate on the one-year adjustable-rate mortgage fell to 3.5 percent.

Stable and relatively low mortgage rates kept homeowners refinancing, according to the Mortgage Bankers Association. Refinances rose 4.9 percent for the week ended Oct. 25 and accounted for 53.3 percent of mortgage applications. Purchase applications edged down 5.7 percent.

Home sales in September were unexpectedly strong with existing-home sales jumping to a record annual rate of 6.69 million units. New-home sales edged down, but came in at a still healthy 1.15 million units.

Durable goods orders also rose thanks to increased business spending, and consumer confidence was up.

The third quarter GDP, however, made the biggest impact, rising 7.2 percent -- the strongest quarterly gain in almost 20 years. Healthy consumer spending and an 11 percent increase in business investment were largely responsible for the good numbers. In addition, the number of first-time jobless claims fell by 5,000.

November contains a number of economic reports with jobs and manufacturing taking the spotlight. The ISM index on manufacturing conditions and the report on the service sector will be influential. The big report, however, is the employment report for October. If the data continue to show a rebound in economic strength, as they have been, more pressure will fall on Treasuries, which would likely send mortgage rates higher.

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

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