Job, earnings reports boost stocks, send mortgage interest rates higher

U.S. Treasury securities were bombarded with encouraging employment news and reports of an economic rebound, resulting in a reversal of fortunes for government issues.

Employment numbers for September sparked a huge sell-off in Treasuries. In addition, a barrage of positive corporate earnings reports, upbeat remarks on the economy from Fed officials, and a steep decline in the dollar kept up the pressure. Treasury prices plunged and their yields soared with the yield on the 10-year note hitting its highest level since early September. As a result, mortgage lenders who use Treasury yields to set rates were forced to increase them on most products.

The 30-year fixed-rate mortgage (based on zero discount points) rose to 5.75 percent, while the 15-year fixed-rate mortgage edged up to below 5.125 percent. The introductory rate on the volatile one-year adjustable-rate mortgage rose to just above 3.75 percent.

A drop in mortgage rates for the week ended Oct. 3 encouraged new applications, according to the Mortgage Bankers Association. Refis jumped 19.9 percent and were responsible for 55 percent of all applications. Purchases also rose by a robust 10.8 percent.

Improving reports on employment have weighed mightily on Treasuries. The addition of 57,000 new jobs to U.S. payrolls in September took a severe toll on government issues, and a decline in jobless claims sent them to their lowest level since February.

In addition, the equity markets have been on a roll, so funds are either staying on Wall Street or moving from Treasuries, as investors place their bets on stocks. Reports from retailers also boosted stocks with big companies, such as Wal-Mart, showing strong September sales and projecting upbeat numbers.

There is a wealth of economic news set for release over the next few days, when quarterly reports will begin in earnest. The most influential indicators include retail sales, the consumer price index, industrial production, housing starts, a consumer sentiment survey and weekly jobless claims. Most analysts expect good corporate earnings and economic news has been largely positive for the past several weeks. If positive reports continue, it may boost yields in Treasuries, which would lead to higher mortgage interest rates.

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

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