Today brings aÂ Treasury auction (30-year Notes) and May's Producer Price Index (PPI). The PPI tracks inflationary pressures for producers. Analysts anticipated no change in the overall reading and 0.2 percent increase in the core data (the core excludes food and energy prices).
However, while May's PPI revealed no change in the overall reading, the core number, which is more important, rose Â by 0.3 percent. This shows that inflationary pressure at the producer level is stronger than previously thought.Â And that's not good for mortgage rates.
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.125||3.678||Unchanged|
|30 year fixed FHA||3.250||4.216||+0.01%|
|15 year fixed FHA||2.750||3.682||+0.06%|
|5 year ARM FHA||2.875||4.014||Unchanged|
|30 year fixed VA||3.375||3.539||+0.01%|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.250||3.350||Unchanged|
As of 10:30 EDT
Indicators are mixed, which probably caused most rates to be unchanged. However, the ones that did change increased, which is not so good.
Unlike last week, this week will be extremely busy. six pieces of economic data that are relevant to mortgage rates along with a couple of Treasury auctions.
All indicators this morning show that rates could rise today. If I were in process with a mortgage, and could not withstand a rate increase, I would probably lock. However, everyone's needs and tolerance for risk are different. If you are risk-averse and can secure a satisfactory rate this morning, you might want to grab it.
Mortgage interest rates depend on a great deal on the expectations of investors. Good economic news tends to be bad for interest rates, because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.
For example, suppose that two years ago, you bought a $1,000 bond payingÂ five percent interest ($50) each year. (This is called its â€ścoupon rate.") Thatâ€™s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.
The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is not five percent.
TheÂ buyer gets an interest rate, or yield, of only 4.2 percent. And thatâ€™s why, when demand for bonds increases and bond prices go up, interest rates go down.
However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.
Imagine that you have your $1,000 bond, but you can't sell it for $1,000, because unemployment has dropped and stock prices are soaring. You end up gettingÂ $700. The buyer gets the same $50 a year in interest, but the yield looks like this:
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