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Rates Likely to Bounce Off Lows

It was the same old story again this week; fixed-rate mortgages came in at the lowest levels on record. But rates are likely to bounce of their lows in the next report.

At 3.67 percent, the average 30-year mortgage was 8 basis points better than last week’s record-low rate in Freddie Mac’s Primary Mortgage Market Survey for the week ended June 7. The 30 year sits 82 BPS below this week last year.

Much of the decline was due to a disappointing U.S. employment report last Friday that indicated U.S. unemployment rose to 8.2 percent in May from 8.1 percent in April and job growth slowed again to just 69,000 new jobs added. The news sent the yield on the 10-year Treasury note down to a record-low 1.47 percent.

But the 10-year yield has since recovered as a result of increased confidence in moves made to combat the European debt crisis, a decision by the People’s Bank of China to cut its benchmark interest rate and testimony made before the Joint Economic Committee Thursday by Federal Reserve Board Chairman Ben Benanke.

The yield on the 10-year Treasury closed at 1.66 percent Thursday, while it averaged 1.59 percent during the period when Freddie surveyed its 125 lenders for this week’s report, according to data released by the Department of the Treasury. The activity points to an increase of around 7 BPS by the next report from Freddie.

More than three quarters of the panelists who participated in Bankrate.com’s survey for the week June 7 to June 13 agreed with that assessment, while nearly a quarter forecasted that rates will remain within 2 BPS of there current levels and none predicted a decline over the next week or so.

Prospective borrowers who inquired about a jumbo mortgage were quoted rates that were an average of 61 BPS higher than conforming rates in the U.S. Mortgage Market Index report from Mortech Inc. and Mortgage Daily for the week ended June 1.

Fixed-rate 15-year loans averaged 2.94 percent, the lowest level ever recorded by Freddie and 3 BPS better than a week earlier. The spread between 15- and 30-year mortgages diminished to 73 BPS from last week’s 78-basis-point spread.

Fifteen- and 30-year loans have now been at all-time lows for six consecutive weeks.

Freddie said the five-year, Treasury-indexed, hybrid, adjustable-rate mortgage averaged 2.84 percent, unchanged over the past seven days.

But the news was not good for the one-year Treasury-indexed ARM, which averaged 2.79 percent in Freddie’s report versus 2.75 percent in the previous survey. But the one-year ARM still came in less than 2.95 percent during the same week in 2011.

Treasury Department data indicate that the yield on the one-year Treasury has closed at 0.18 percent each of the last four days and was unchanged from last Thursday. The index determines rate adjustments on the one-year ARMs.

It was a similar story for the six-month London Interbank Offered Rate, which was 0.74 percent as of Wednesday, the same as seven days prior, according to Bankrate.com.

As fixed rates dug deeper into record territory, fewer consumers were interested in ARMs, with ARM share drifting down to 4.05 percent in the latest Mortgage Market Index report from 4.16 percent the previous week.

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