Government and mortgage interest rates edged higher Friday morning after trading better for the week. Even the weaker than expected housing data reported for February did not benefit the bond market.
By all accounts, the U.S. economy remains strong as evidenced by strong consumer sentiment. While the CPI inflation readings pulled back from last month, the consensus remains intact for higher interest rates. With the two-day Fed meeting set to kick off on this coming Tuesday, traders may not want to make any big bets ahead of Wednesday’s 2:00 p.m. ET release of the monetary policy statement. It is almost 100% certain that the Fed will raise rates by .25% to 1.75%. This predicted rate increase in short term lending rates will come as no surprise to the market. Keep an eye on the policy statement as this will provide clues to where the Fed officials feel the economy and inflation is headed.
The Commerce Department reported that housing starts fell 7% in February from January due in part to a plunge in multi-dwelling units. Building permits fell 5.7% from January. Housing remains severely constrained, especially in coastal cities. Prices are high and inventory low. The lack of future incoming supply is worrisome, but to date higher home prices have not stopped buyers from entering the market.
The yield on the 10-year note fell to 2.80% yesterday, which is acting as support and has increased to 2.85% this morning. A break below 2.80% on the 10-year note would be a welcome sign, however getting there would require some new worries or unexpected bad economic news.
With the economy and consumer sentiment robust and the likelihood of higher short-term interest rates is all but a given, we remain biased toward locking-in interest rates. Lenders remain hungry for business and continue to tweak rate sheets to attract the best quality borrowers which is helping keep rates attractive by historical measures.