Mortgage rates held stable for most of the day yesterday as an empty economic calendar left market participants to quietly ponder the Fed's upcoming monetary policy communication with the marketplace. In a VERY slow trading environment, both benchmark Treasury yields and prices of mortgage-backed securities held to a tight range, allowing lenders to keep mortgage rates unchanged FOR MOST OF THE DAY. I emphasize this because rates did begin to rise late in the afternoon which pushed MBS prices lower. Although the losses were not substantial, there were scattered reports of lenders "repricing for the worse", nothing widespread though. 

Today begins day one of the two day Federal Open Market Committee meeting. The FOMC determines our nation’s monetary policy.  Nothing happens on day one, the FOMC statment is released on day two at 2:15pm.

The econ calendar picked up today.

First out this morning was the producer price index.This report measures prices paid by businesses. It is a read on INFLATION at the producer level.

PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production.  If businesses have to pay more for the materials they use to produce their widgets …they are mostly likely going to pass along those additional costs to you…the consumer. The Producer Price Index is broken down into three progressive stages of production. Crude Goods, Intermediate Goods, and Finished Goods. Finished goods is considered Headline Producer Inflation. The cost to produce a finished goods is affected by the cost of the entire production cycle so one should note which stage of production is adding the most cost to the final product.

The release indicated that wholesale prices rose more than expected last month, led higher by increasing energy costs.  The overall reading indicated producer prices up 1.8% when only a 0.8% increase was expected. The core reading, which strips out food and energy, posted an increase of 0.5% vs 0.2% expected.   Year over year we did get the first positive reading with the overall PPI up 2.7% while the core rate is up 1.2%.  Despite the inflation unfriendly data, today’s report does not signal that inflation is here but does raise at least some concern.  Oil prices have come down from last month which should be reflected in next month’s PPI data.    For more on this report, READ AQ's Commentary

Tomorrow we get a read on inflation at the consumer level. This is more important to market watchers that producer level inflation.

The Federal Reserve released Industrial Production data this morning. This report  shows how much factories, mines and utilities are producing.  Economists had expected Industrial production to post a monthly increase of 0.6% following last month’s 0.1% increase.  The report indicated that Industrial Production increased more than expected, coming in at 0.8%.  Not much reaction following the release of this data.

Two better than expected economic headlines did not have a positive influence over the bond market. Following the release of PPI data, Treasury yields shot higher and MBS prices fell. Consequently, mortgage rates have risen today.

Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage has risen to the 4.875% to 5.125% range for well qualified consumers.  There are however still a few lenders offering 4.75%.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You may elect to pay less in fees but you will have to accept a higher interest rate.  This is a good option for consumers who do not plan on keeping their home for a longer than three years. 

With more inflation data tomorrow and the Fed statement which can offer many surprises...I am locking any loans I have left in the pipeline.