Mortgage Rates





In early trade this morning the 10 yr note yield touched 2.00% ahead of the $24B 10 yr auction later this afternoon (1:00 pm). Mortgage prices started slightly weaker; both the 10 yr and MBS prices holding well so far with no economic releases scheduled again today. Stock index futures traded slightly better prior to the open at 9:30. At 9:00 this morning, after testing support at 2.00% the 10 yr was back to 1.98% unchanged from yesterday and mortgage prices were also unchanged.

At 9:30 the DJIA opened generally unchanged (-3 points); the 10 yr note -132 at 1.98% unch and mortgage prices also unchanged. Investors should have 100% of investments in equities because of valuations and higher returns than bonds, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager.

Greece remains a major focus for markets as it struggles to come up with a debt relief plan. Greece’s prime minister delayed a meeting of Greece’s political parties again yesterday, the second delay in as many days. Greek Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after he missed another deadline to secure a second aid package. The ECB is prepared to swap its holdings of Greek government bonds to contribute to a reduction of the country’s debt burden, Dow Jones reported yesterday, citing unidentified people briefed on the talks. The agreement could reduce Greece’s debt by as much as 11 billion euros, Dow Jones said. A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. Parliament may be called to vote on the terms of the write-down on Feb. 12, state-runs Athens News Agency reported yesterday, without saying how it got the information.

Mortgage applications increased 7.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 2012. The Refinance Index increased 9.4% from the previous week. The seasonally adjusted Purchase Index increased 0.1% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 4.88%. The four week moving average is up 0.65% for the seasonally adjusted Purchase Index, while this average is up 5.72% for the Refinance Index. The refinance share of mortgage activity increased to 80.5% of total applications from 80.0% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.0% from 5.6% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05%, the lowest rate in the history of the survey, from 4.09%, with points increasing to 0.44 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.29%, the lowest rate in the history of the survey, from 4.33%, with points increasing to 0.43 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.89%, the lowest rate in the history of the survey, from 3.96%, with points increasing to 0.78 from 0.61 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.33%, the lowest rate in the history of the survey, from 3.36%, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.91% from 2.94%, with points increasing to 0.40 from 0.39 (including the origination fee) for 80% loans.

At 1:00 Treasury auction a new 10 yr note, selling $24B of the notes. Yesterday’s 3 yr note didn’t do quite as well as previous 3 yr auctions, today’s 10 yr with the yield close to 2.00% on the current 10 yr will be a good test of demand after yields have increased over the last week. If demand is weak look for the 10yr to exceed 2.00%; a strong auction will likely rally the 10 yr and mortgages. In the meantime the bond market will likely be relatively flat this morning ahead of the auction.

MBS markets are holding well frm a technical perspective while the bellwether 10 yr note is slightly bearish, trading above its 40 day average on the yield and the relative strength index above the pivotal 50 level. That said, so far the 10 yr is holding its first support at 2.00%. The outlook for the rate markets depends on three factors; the Greek debt issues, how the stock market trades and today’s $24B 10 yr auction. As for lower rates ahead, the 10 yr has heavy lifting to do when it moves below 2.00%, there is huge resistance at 1.80%; mortgage rates don’t have much more improvement left at the moment, however there is not much likelihood mortgage rates will increase much either.