Dedham Condominiums

A strong read on consumer confidence on Tuesday ignited a moderate sell-off in U.S. Treasury securities as traders squared their positions ahead of the Fed announcement on interest rates due Thursday. In addition, the equity markets posted big gains due not only to the increase in confidence but also a big drop in oil prices. The Wall Street rally attracted funds that had been invested in bonds. A group of economists, known as the Bond Market Association, representing big banks and brokerages, also offered a bullish outlook for the U.S. economy and continued rate hikes. Although selling in Treasuries was steady, and yields, which move in the opposite direction of prices, rose substantially, mortgage lenders who base their rates on yields, have not increased their rates yet.

Oil, which closed at $60.54 a barrel on Monday and has kept pressure on stocks for the past several days, reversed course on Tuesday. Oil fell $2.19 a barrel, sending the price down to $58.35. The lifting of this burden on investors spurred a rally after six days of declines.

Likewise, the Conference Board's Consumer Confidence Survey for June rose to 105.8 - its best showing in three years. Not only did it exceed analysts' forecasts of 104, but it also was well above May's upwardly revised level of 103.1. The leap in confidence persuaded the markets that consumer spending would be brisk. While this prospect hurt Treasuries it boosted stocks, as consumer spending accounts for roughly two-thirds of economic growth.

Big Gains All Around on Wall Street

Both the Dow Jones Industrials and the Nasdaq composite added more 1 percent on Tuesday, with cyclicals (those companies that do well during periods of economic expansion) leading the charge. Homebuilders also posted sizable gains and there were select individual winners. A whopping 28 of the Dow Jones 30 posted gains, led by United Technologies, which rose 2.9 percent. GM added 2.7 percent, followed by Home Depot with a 2.2 percent increase. Another 12 components rose more than 1 percent, while Exxon and Pfizer were the only two to close in negative territory.

News on the tech side centered on a lawsuit by Advanced Micro Devices that charged Intel with anti-trust violations. Both stocks rose, with AMD adding 6.3 percent. Oracle gained 2.3 percent on bullish fiscal fourth-quarter earnings, and Paychex rose 10 percent after beating earning estimates. Sun Microsystems, which climbed 1.4 percent, drove SeeBeyond Technologies up 30 percent with an offer to buy, and Cubist Pharmaceuticals soared 21 percent due to positive news about late-stage trials for a new drug. IBM also posted a gain of almost 2 percent. Tech bellwethers that closed negative were JDS Uniphase, which lost 1.3 percent, and Ericsson and Qualcomm, which suffered modest losses.

At Closing: The Dow 30 Industrial Index rose 114.85 points or 1.12 percent to end at 10,405.85; the Nasdaq Composite index gained 24.69 points or 1.21 percent to close at 2,069.89, and the benchmark Standard & Poor's 500 Index closed up 10.88 points or 0.91 percent to end at 1,201.57.

The 30-year Treasury bond was down 29/32 in price with the yield rising to 4.24 percent versus a 4.19-percent closing on Monday.

The 10-year Treasury note was down 18/32 in price with the yield rising to 3.97 percent versus a 3.90-percent closing on Monday.

The 5-year Treasury note was down 9/32 in price with the yield rising to 3.75 percent versus a 3.68-percent closing on Friday.

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

The 30-year Conventional Fixed-Rate Mortgage was at 5.38 percent from 5.38 percent at Monday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 4.973 percent from 4.953 percent at Monday's close.

Coming Up

On Wednesday the final revision of first-quarter Gross Domestic Product will be released, with analysts expecting an increase to 3.6 percent from the preliminary reading of 3.5 percent. If the final numbers come in stronger or weaker than expected, they could move the markets. The weekly report on oil inventories is also due and has gained in importance over the past several months. Lower-than-expected inventories could weigh on the markets. The Federal Open Markets Committee also will convene its two-day meeting on interest rates, but its decision will not be announced until Thursday at 2:15 p.m. This report will be the most significant of the week so Treasuries could hold reasonably steady tomorrow. This might allow mortgage rates to hold near present levels, at least for one more day.

Carolyn Siegel

carolyn@interest.com

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