Rate Update December 30, 2009

Mortgage rates are unchanged from yesterday.

Yesterday’s $42 billion auction of 5-year Treasury notes went fairly well given the time of year.  Today the Treasury will complete this week’s $118 billion in note sales with a $32 billion offering of 7-year notes.  So long as the results of this auction are decent we’d expect rates to remain unchanged.

This morning the Institute of Supply Management reported that the Chicago Purchasing Managers Index was better than expected.  This index, which effectively reports on the overall health of business conditions in the Chicago region, showed economic expansion.

Over the past month many of the economic reports issued have indicated general economic improvement.  This will likely lead to an increase of inflation expectations in the first quarter of 2010.  Due to this we don’t believe mortgage rates will improve substantially from current levels.  Therefore, there is more risk to floating than to locking rates.  We are going to shift to a long-term locking bias.

Current outlook: neutral near-term, locking long-term

P.S. Rate Update will be on vacation on New Year’s Eve and New Year’s Day.