Last week, rates ended higher than where they began. The negative movement in rates began Monday due primarily to the continuing movement of foreign investment money out of the U.S. towards higher returns in Europe. This trend coupled with the possibility of higher inflationary pressures doesn't look good for rates in the short term.
As we explained last week, the trend towards moving investment money out of the U.S. for the possibility of higher rates in Europe continued last week. The most telling sign of this trend was last week's Treasury auction. Typically, foreign investor's appetite for our bonds usually consumes about 50% or more during a typical Treasury auction. At last week's auction however only a mere 5.5% was bought by foreign investors. If this trend continues, it means big trouble for rates.
As if the lack of foreign investment wasn't trouble enough for rates, on Friday hidden in the Jobs Report, Hourly Earnings rose by 5 cents in February. Although a nickel might not seem significant, it actually is quite significant. This average nickel raise might just be enough to fuel the classic 'wage-price spiral.'
Of course the wage -price spiral is inflationary by nature and is caused when employers are forced to raise prices due to increasing salaries, which in turn causes workers to demand higher salaries to afford the goods and services they use to be able to afford. The spiral if left unchecked, is highly inflationary.
This week's economic calendar is loaded with inflationary indicators, the most notable being the Consumer Price Index (CPI) and the Retail Sales report. If any of this week's indicators hint at inflation it is highly likely that rates will continue their upward movement this week.
The Mortgage Market This Week
Monday, March 13, 2006 - The Bond Rate Monitor
Discuss this article in our Discussion Groups
Refinance your mortgage now at todays low rates - Click Here Now