Concord Condominiums

After spiking on Tuesday, mortgage rates edged back down on Wednesday. Rates had ticked up for three straight sessions due to aggressive selling of U.S. Treasury securities spurred by a steady stream of positive economic news. Selling of Treasuries sends their prices down and yields, which move in the opposite direction of prices, up. And mortgage lenders that base their rates on Treasury yields were forced to keep pace. But today was different for several reasons.

The only economic report, the ISM index on the service sector in July, fell to 60.5 from a 62.2 reading in June, bolstering Treasuries. The index was also shy of the 61.5 predicted by analysts. New orders rose only slightly in July, but the number that could have caused alarm was put on the back burner. The 'prices paid' index rose sharply, which could signal inflation down the road. Inflation is feared because it erodes the value of fixed-rate assets, such as Treasuries.

Traders also welcomed the news that the U.S. will sell long bonds again, starting in February 2006. The 30-year bond was deemed unnecessary in 2001 when the Treasury surplus eliminated the need to sell long-term debt. But times have changed and some analysts believe that the resurgence of the 30-year bond will help reshape the yield curve, which has been flattening as yields on short-term paper climb. The Treasury also announced that upcoming auctions of the 2-, 5- and 10-year notes would be smaller than anticipated -- news that was well-received. These factors resulted in lower yields that allowed mortgage lenders to bring rates down to previous levels.

Big Moves Keep Stocks Hopping

Trading was choppy on Wall Street with investors forced to mull a number of reports and a couple of big deals. Earnings reports from Duke Energy, Calpine and Time Warner all disappointed, and Brocade warned that it would miss estimates. But there were some big gains, too. Adidas will buy Reebok in a $3.8 billion deal that sent Reebok's shares up 30 percent. Aon, a giant in insurance, rose 10 percent on positive earnings, and E-Loan soared 33 percent on word that Popular, Inc., the Puerto Rican bank, is buying the online mortgage site for $300 million cash.

The chip sector, which has been driving the Nasdaq to new four-year highs this week, took a breather today and as a result the Nasdaq closed just below breakeven. The tech bellwethers were mixed, with Yahoo! up 1.9 percent and Microsoft following closely due to speculation that another big dividend will be offered. JDS Uniphase, which has made recent big gains, led in the loss department - down 4.4 percent. Oracle lost 1.5 percent, and Dell and Sun Microsystems each shed 0.77 percent.

The Dow Jones Industrials posted a gain, although not a spectacular one. There was little in the way of big moves by the 30 components. Of the 18 that closed positive Microsoft, SBC and Verizon were the only ones to climb by more than 1 percent. And Exxon, which has been supported by rising oil prices, was the only Dow component to lose more than 1 percent as oil prices moved back down. Oil dropped $1.03 a barrel to close at $60.86, due in part to better-than-expected inventory of crude. Gasoline inventories, however, were down 4 million barrels, but distillates were in line, with 1.5 million barrels on hand.

At closing:

The Dow 30 Industrial Index rose 13.85 points or 0.13 percent to 10,697.59; the Nasdaq Composite index was down 1.34 points or 0.06 percent at 2,216.81, and the benchmark Standard & Poor's 500 Index gained 0.92 points or 0.07 percent to close at 1,245.04.

The 30-year Treasury bond was up 22/32 in price with the yield falling to 4.50 percent versus 4.54 percent at Tuesday's close.

The 10-year Treasury note was up 10/32 in price with the yield falling to 4.29 percent versus 4.33 percent at Tuesday's close.

The 5-year Treasury note was up 5/32 in price with the yield falling to 4.12 percent versus 4.16 percent at Tuesday's close.

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.637 percent from 5.692 percent at Tuesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.224 percent from 5.282 percent at Tuesday's close.

Coming Up

First-time unemployment claims for the week ended July 29 is the only report scheduled for release on Thursday. Analysts are expecting claims to climb by about 10,000 from 310,000 the previous week. This report will turn focus to the July Employment Report due out Friday. Because Treasury yields edged back down on Wednesday, mortgage rates should hold near current levels.

Carolyn Siegel

carolyn@interest.com

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