Rate Update January 14, 2010

Despite relatively solid results from yesterday’s US Treasury 10-year note auction mortgage rates are slightly worse this morning.  Mortgage rates suffered from growing optimism about the economic recovery.

However, that optimism subsided with this morning’s retails sales report which showed retail sales in December declined by -.3% (analysts had expected an increase of +.5%).  In addition, the Labor Department released another interest-rate friendly report showing import prices were flat in December.  At least for now it doesn’t appear that inflation is on the near-term horizon.

It seems that market sentiment has shifted day-to-day like a see-saw since the start of the year.  There is a wide range of forecasts regarding the degree and pace of an economic recovery and no one is confident in their predictions.  This is a recipe for volatility so don’t be surprised to see “choppy” trading from day-to-day.

The final leg of this week’s $84 billion in US Treasury auctions will take place when $13 billion in 30-year bonds are auctioned.

Current outlook: neutral