Mortgage Rates




Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Tuesday, October 25, 2011


EU leaders will return to Brussels tomorrow for a second summit in four days to discuss Europe’s bailout fund. European leaders are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain; a lot of talk about Greece but the real problems are Italy and Spain, keeping them from crashing is what its all about. Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said yesterday talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50% to 60%. Regardless of what comes from the summit meeting tomorrow the debt crisis in Europe is far from over; it will take years to resolve the sovereign debt that is essentially junk and who will take the losses. No way to avoid the end game here; the countries in Europe that are on the edge and lenders that hold the debt, as well as possible rating downgrade of France debt will continue to face serious financial and fiscal problems for years. German and French two-year notes rose, outperforming longer maturities, amid speculation European leaders will fail to agree on a solution to the region’s debt crisis and avoid a Greek default.

News hit at 9:45 that the EU finance ministers will not hold their meeting tomorrow. Not the summit, but canceling the meeting is seen as more evidence there is still no common ground that will come tomorrow. The reaction was swift, sending the DJIA down 165 points before rebounding a little. So far this morning market volatility is very high.

Given that whatever comes from the meeting tomorrow won't end the crisis, it appears it doesn't matter to equity markets as stocks in the US have rallied strongly in the last month with the DJIA gains the largest point gains ever in the index. Investors had become too bearish over the uncertain situation in Europe and until a few weeks ago economists forecasting decline in the US economy. Investors may be getting used to the reality that Europe's debt mess will not end anytime soon and that the banks in the region won't actually fail as continuous bandages will be applied as needed.

Earlier this morning the rate markets started weaker, the 10 note yield at 8:00 2.27%, the same high we had a week ago. Mortgage prices at 8:30 were down 3/32 (.09 bp), the DJIA was +30 at 8:30. By 9:00 the 10 yr recovered all its slide and was back to 2.23% unchanged, mortgage prices increased from -3/32 to +7/32 (.22 bp) and the DJIA traded down 40 points. So far today with hardly any time off the clock markets have seen a lot of volatility. Overall however the bond and mortgage markets are trendless near term with not much change over the past two weeks.

At 9:00 August Case/Shiller home price index for 20 cities, expected down 3.5% yr/yr was -3.8%; for the month of August +0.2% frm July. No reaction to the report.

At 9:30 mortgage prices +3/32 (.09 bp) on 30s, -1/32 (.03 bp) on 15s; the 10 yr note +2/32 at 2.22% unch. The DJIA opened -50; within 10 minutes the index was down 121 setting off a strong move on the 10 yr, +10/32 at 2.20% -3 bp and mortgages at 9:40 +8/32 (.25 bp).

At 10:00 Oct consumer confidence expected at 46.0 frm 45.4 fell to 39.8 the lowest reading since Mar 2009, the expectations component fell to 48.7 frm 55.1. Also at 10:00 August FHFA home price index fell 0.1% frm July and down 4.0% yr/yr. Treasuries rallied on the data, stock indexes dipped and mortgage prices improved a few basis points. So far today markets have been highly volatile.

Later today at 1:00 Treasury will auction $35B of 2 yr notes, we expect good demand.

The bellwether 10 yr note that sets the pace for mortgage rates is finding technical support at 2.27% with the major support at 2.30%; on the down side the 10 yr can't break below 2.10% and mortgage rates tied into a very narrow range with no direction but tagging along with the 10. Most of our models and various technical indicators remain bearish for now. The direction yet to be determined, once the ranges are broken in either direction we can expect a swift move in the direction of the break whenever it occurs. So far this morning financial markets have been volatile with news dribbling out of Europe that continues a slow water boarding for traders and investors.