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U.S. Treasury securities sold off early on Monday due to disappointment over Friday's June Employment Report, which wasn't weak enough to halt the Fed. Bonds also reacted negatively to a speech by Richmond Fed president Jeffrey Lacker, who stated that it was too soon to expect the Fed to pause its rate-hike program. In addition, he suggested that he was more concerned about inflation resulting from increased wages than he was about inflation brought about by high energy prices. This statement along with another good day for Wall Street and signs of a growing economy, sent prices on Treasuries down and their yields, which move in the opposite direction of prices, up.

But during the session, concerns about inflation and economic strength appeared to diminish, and yields, which earlier had hit new multi-month highs, ebbed and closed very close to Friday's levels. This reverse allowed mortgage lenders who base their rates on yields, to hold them steady on most mortgage products.

Wall Street Posts Another Day of Gains

Optimism over Friday's employment data, upcoming quarterly earnings and a slide in oil prices resulted in another big day for the three major indexes. Investors are bullish about earnings season, with the likes of GE, AMD, and Apple due to report this week. Worries about oil wound down as Hurricane Dennis lost its punch and did no damage to oil rigs in the Gulf of Mexico. These concerns sent oil prices soaring last week, but on Monday oil closed at $59.92 a barrel.

Twenty-two of the Dow Jones components closed positive, led by GM, which added 3.23 percent, but there were a number of impressive gains. An upgrade of Procter & Gamble resulted in a1.8-percent increase, which was matched by Alcoa. Altria, 3M, DuPont and Intel each added 1.5 percent, and McDonald's posted a 1.1 percent gain. None of the eight Dow members that closed in negative territory suffered big losses.

The Nasdaq composite gained more than 1 percent today, with chips and Internet stocks leading the way. Yahoo! and eBay posted significant gains, and chip stocks, such as Applied Materials and Teredyne (which trades on the NYSE but influences the Nasdaq) also put up good numbers. The tech-heavy index also got a surprise boost from Marvel Entertainment, which rose 10 percent due the box office success of the 'Fantastic Four.' Ten of the tech bellwethers posted gains today, led by 3.3-percent increases by both Yahoo! and JDS Uniphase-the only ones to close negative on Friday. Six other bellwethers added more than 1 percent, and two had more modest increases, leaving IBM the only one to close in the red.

At closing:

The Dow 30 Industrial Index rose 70.58 points or 0.68 percent to 10,519.72; the Nasdaq Composite index was up 22.55 points or 1.07 percent at 2,135.43, and the benchmark Standard & Poor's 500 Index gained 7.58 points or 0.63 percent to close at 1,219.44.

The 30-year Treasury bond was up 2/32 in price with the yield holding at 4.34 percent.

The 10-year Treasury note was down 1/32 in price with the yield holding at 4.09 percent.

The 5-year Treasury note was down 2/32 in price with the yield rising to 3.89 percent versus 3.87 percent at Friday's close.

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

The 30-year Conventional Fixed-Rate Mortgage was at 5.464 percent from 5.441 percent at Thursday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.059 percent from 5.018 percent at Thursday's close.

Coming Up

There is little in the way of economic news on tap for Tuesday. The two weekly surveys on nationwide retail sales will be released but have little or no impact on the financial markets. The U.S. trade deficit is due Wednesday followed by reports on inflation and retail sales that will come out the last two days of the business week. Until then, however, the markets will be looking to corporate America for guidance. If Wall Street continues to rally, that could draw money from Treasuries and result in yields creeping higher. This would in turn put upward pressure on mortgage rates. But overnight and into Tuesday, mortgage rates should hold firm.

Carolyn Siegel

carolyn@interest.com

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