Dorchester Commercial Real Estate

It was a tough day for the financial markets. Stocks closed in negative territory. U.S. Treasuries securities sold off. In fact, outside of a few select stocks, the only things that rose on Monday were Treasury yields, which move in the opposite direction of prices. Bond traders are looking ahead to Fed Chairman Alan Greenspan's two-day testimony on Capitol Hill with a measure of anxiety. They also were reminded of the enormous trade deficit that burdens the U.S. economy. With these items weighing on Treasuries, traders sold, sending the yield on the benchmark 10-year note up to 4.22 percent - its highest level since the first week of May. However, mortgage lenders appear to be reluctant to raise rates accordingly, so for now rates remain near levels of last week.

On Wednesday and Thursday Fed chief Greenspan will appear before the House Financial Services Committee and the Senate Banking Committee, respectively. This biannual testimony, formerly known as Humphrey-Hawkins, will cover a wide range of topics that will likely include short-term interest rate hikes. The Treasury markets will key into any clues regarding the Fed's intentions with regard to this subject. Bond traders also were reminded of the trade imbalance when capital flows data for May were released. Although $60 billion in Treasuries were purchased in May - enough to well cover the $55.3 billion deficit - there was concern regarding participation from some foreign countries. Decreased interest from nations such as China would raise a yellow flag in the Treasury markets.

Stocks Take a Break After Winning Week

Last Friday the S&P 500 hit another four-year high and the Nasdaq closed at its highest level of 2005. So after a frenetic week that showed gains piled on gains, the equity markets took a breather. Light volume and some profit taking pushed the major indexes into negative territory for the session. Even a drop in the price of oil, which fell 77 cents to close at $57.32 a barrel, couldn't turn them around.

An earnings miss by financial heavyweight Citigroup - one of the 17 Dow Jones components reporting this week - put pressure on the index from the opening bell. Although Citigroup's earnings beat those of a year ago, they missed analysts' estimates by 4 cents a share and put pressure on the entire financial sector. Even Bank of America, which beat estimates, fell. Only five Dow components closed in positive territory, and Home Depot was the only one with a significant gain, adding 2.1 percent. Citigroup led in the loss column, falling more than 3 percent. Seven other components lost more than 1 percent, with AIG hit the hardest - down 1.7 percent. Charles Schwab, a brokerage that is not a Dow member, went against the trend, gaining 5.5 percent after topping earnings estimates.

The Nasdaq composite broke its string of seven wins on Monday, with most of the tech bellwethers closing in negative territory. In fact, JDS Uniphase, which has been volatile lately, was the only one to post a gain - up 1.8 percent. Of the nine that closed down, Sun Microsystems, Qualcomm, Ericsson, Oracle and Cisco Systems each shed more than 1 percent.

At closing: The Dow 30 Industrial Index fell 65.84 points or 0.62 percent to10,574.99; the Nasdaq Composite index was down 11.91 points or 0.55 percent at 2,144.87, and the benchmark Standard & Poor's 500 Index lost 6.79 points or 0.55 percent to close at 1,221.13.

The 30-year Treasury bond was down 1-7/32 in price with the yield rising to 4.46 percent versus 4.40 percent at Friday's close.

The 10-year Treasury note was down 15/32 in price with the yield rising to 4.22 percent versus 4.17 percent at Friday's close.

The 5-year Treasury note was down 8/32 in price with the yield rising to 4.02 percent versus 3.97 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 5.477 percent from 5.471 percent at Friday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 5.068 percent from 5.066 percent at Friday's close.

Coming Up

On Tuesday we get the first look at the housing market for June. Analysts are expecting big increases in both Housing Starts and Building Permits, which point to future starts. Housing starts are expected to grow to an annualized rate of 2.08 million units - up from the 2.01 million units posted in May. An increase in building permits is also forecast, with analysts' estimating 2.10 million permits on an annual basis - somewhat higher than the 2.05 million reported in May. Strong numbers from the housing sector could boost shares of homebuilders, home improvement companies and others affected by healthy numbers in the housing sector. Treasuries, meanwhile, will be focusing on Greenspan's testimony and on the minutes of the June 30 Fed meeting, which will be released on Thursday. They will be looking for additional information about the Fed's intentions. If bond traders adopt a wait-and-see attitude, Treasury yields could hold near today's higher levels. This could force some lenders to raise rates in order to keep pace with rising yields.

Carolyn Siegel

carolyn@interest.com

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