Melrose Condominiums

Mortgage rates briefly spiked overnight and early Tuesday due to the big jump in Treasury yields on Monday. Yields on Treasuries, which move in the opposite direction of prices, soared yesterday, with the yield on the benchmark 10-year note hitting 4.22 percent - its highest level since the first week of May. But today traders apparently made peace with the prospect of future rate hikes and Fed chief Alan Greenspan's upcoming testimony on Capitol Hill. The acceptance of rate hike increases resulted in steady buying of Treasuries, and the slight decline in yields allowed lenders to edge rates back down.

Comments made by Greenspan on Monday and St. Louis Fed president William Poole today confirmed that rate hikes would continue but that inflation is under control and the economy is handling high oil prices. It also was noted that the economy is expanding at a moderate pace. With this data on the table ahead of Greenspan's Wednesday appearance before the House Financial Services Committee, and given Tuesday's positive but not overwhelming numbers on housing starts, traders squared their positions. Tomorrow is the first of two days of testimony, a biannual event, formerly known as Humphrey-Hawkins. Greenspan is expected to cover a wide range of topics that are likely to include short-term interest rates.

The only economic release on Tuesday showed Housing Starts were unchanged in June, holding at an annual rate of a still-strong 2.004 million units, slightly below analysts' forecasts for an increase to 2.045 million units. Starts of single-family homes fell 2.5 percent, but an increase in multi-unit dwellings made up the difference. On the other hand, building permits, which point to future starts, rose 2.4 percent in June to 2.11 million - more than the forecast for 2.08 million and higher than May's reading of 2.06 million.

IBM Rallies Dow and Tech Sector

The old saying, 'As Big Blue goes, so go the markets,' was never truer than it was today. A strong earnings report from IBM pushed the Dow Jones Industrials into positive territory at opening and carried a number of techs on its long coattails. IBM added 2.4 percent on the session after beating earnings and revenue estimates and topping year-ago numbers. Johnson & Johnson also exceeded estimates and raised guidance for 2005. But it was Caterpillar, which will release earnings later this week, that led the Dow with a 5-percent-plus gain based on great expectations.

Microsoft and Honeywell also rose more than 2 percent on the session. Five Dow components gained more than 1 percent, led by Home Depot, which has posted gains totaling 5.4 percent since Friday's opening. Ten Dow components closed flat to down, with three - Citigroup, Hewlett-Packard, and Disney - losing more than 1 percent each.

The Nasdaq composite gained more than 1.3 percent, with upbeat news from IBM setting techs on fire. The tech bellwethers had three big caps in addition to IBM closing with better than 2-percent gains: Microsoft, Sun Microsystems, and Cisco Systems. In addition, Dell, Qualcomm and Intel, which reports after the bell, posted gains nearing 2 percent. Yahoo! led the tech bellwethers with 3.14-percent gain in anticipation of its after-hours report. JDS Uniphase, the only one to post a gain yesterday, was the only one to record a loss today.

At closing:

The Dow 30 Industrial Index rose 71.57 points or 0.68 percent to10,646.56; the Nasdaq Composite index was up 28.31 points or 1.32 percent at 2,173.18, and the benchmark Standard & Poor's 500 Index gained 8.22 points or 0.67 percent to close at 1,229.35.

The 30-year Treasury bond was up 19/32 in price with the yield falling to 4.43 percent versus 4.46 percent at Monday's close.

The 10-year Treasury note was up 8/32 in price with the yield falling to 4.19 percent versus 4.22 percent at Monday's close.

The 5-year Treasury note was up 4/32 in price with the yield falling to 3.99 percent versus 4.02 percent at Monday's close.

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

The 30-year Conventional Fixed-Rate Mortgage was at 5.513 percent from 5.477 percent at Monday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.094 percent from 5.068 percent at Monday's close.

Coming Up

There are no economic indicators due Wednesday, but that doesn't mean there will be no news as the financial markets focus on Greenspan's testimony before the House Financial Services Committee. There also will be more earnings reports on tap, and some could move the markets, as a big Wall Street rally could draw money from Treasuries. Overnight and into tomorrow mortgage rates should hold steady thanks to the slight decline in Treasury yields that occurred in today's trading.

Carolyn Siegel

carolyn@interest.com

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