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Home arrow News arrow Mortgage Rates Dropped for this Week
Mortgage Rates Dropped for this Week Print E-mail
Friday, 14 July 2006
Mortgage rates are lower, with the lowest-fee, 30-year stuff approaching 6.75 percent, taken by the 10-year T-note's decline to 5.05 percent. Ditto for measuring the odds of falling out of the bottom of that band.

The bond market has been moving lower in yield in the two weeks since the Fed's last meeting on a consistent string of reports of a slowing economy, and rising oil prices. Makes sense, as the employment cost index (tipped upside down, a good measure of income from employment) has gained only 2.6 percent in the last year, the lowest gain on record, versus much higher energy and interest costs and the gradual evaporation of the wealth effect from home prices.

The energy picture is disturbing. China's oil imports surged 15 percent in the first 90 days of 2006, double the forecast, but consistent with an economy growing almost 10 percent per year, and the dawn of affluence is disproportionately increasing appetites for energy.

Confounding everyone from those who would limit fossil-fuel use to prevent climate change to central bankers who would limit inflation, global energy demand continues to grow, firmly linked to GDP growth. We are more efficient, but as global GDP grows, oil demand grows faster than efficiency. Some in the bond market think this latest rise in oil prices will be the coup de grace for consumers, while others think the inflation hazard will force the Fed to hike one or more times, which in turn will put the final kibosh on consumers.

Stock market types are blaming oil, the Middle East, and North Korea for their evident distress, when a softening economy is a simpler explanation. Bonds have improved tick-for-tick on the stock market sell-off.

By M. Sese

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