Excerpts from 4/13/06 newsletter:
In recent weeks, oil and gasoline prices have stomped higher, bringing renewed fears of an outbreak of inflation. Prices of precious and common metals have soared. With a Fed certain to stay the course of raising short-term interest rates, at least for a while longer yet, all interest rates have no place to go but up.
Backed by pretty fair economic data released this week, remarks by Fed Governor Donald Kohn helped to push 10-year Treasury yields solidly over 5%, pointing to higher fixed-rate mortgages in the coming days.Mortgage rates are being pressed higher as underlying costs of credit are rising. Spreads are compressing still, but the pressurecontinues to rise. The nine basis point rise in the weekly 10-year Treasury forced only a five basis point lift in the 30-year FRM.
Next week, we start on an upward note, but there are three things which could cause a tempering in rates: minutes from March's FOMC meeting might add some ambiguity about the need for higher rates this spring; the Producer Price Index might point to receding inflation; or the Housing Starts figure might note a coming train wreck for housing. We're expecting none of them to provide that kind of clarity, so 30-year fixed mortgage rates should add perhaps another five basis points.