Rate Update August 13, 2010

Mortgage rates are higher this morning following yesterday’s sell-off in the bond market.

Interest rates rose yesterday afternoon mostly on profit-taking.  After mortgage-backed bonds (MBS’s) rallied for three consecutive days following the weak employment report many traders apparently decided to opt for shot-term profits which created selling pressure.

This morning the Labor Department reported that inflation as measured by the Consumer Price Index (CPI) rose by an annual rate of 1.2% (when you back out volatile food+energy=.9%).  Inflation is the primary driver of mortgage rates so this report verifies one reason why mortgage rates have dropped so low.

In the near-term rates may move modestly higher from the lows they hit on Wednesday.  However, there is still a great deal of uncertainty with regard to the economy.  Therefore, I still believe floating long-term is the play.

Current outlook: floating long-term