Mortgage Rates

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. Monday, August 20, 2012 Treasuries and mortgages started lower in price this morning; early trade in the stock indexes somewhat weaker. This week has little scheduled news and data; the Republican convention gets underway but likely it won’t have any market impact. July new and existing home sales and July durable goods orders are all there is this week. Europe’s leaders are returning from vacation with agreement still elusive on measures to support Greece and to prevent Spain and Italy being shut out of sovereign debt markets. Spain urged unlimited European Central Bank support over the weekend after its 10-year bonds last week advanced for the first time this month, as Merkel signaled conditional support for the ECB’s plan to help reduce indebted countries’ borrowing costs. Germany’s prime minister Angela Merkel, last week sounded sympathetic to the ECB’s plan to buy sovereign debt and cap interest levels in the region; a huge positive as Germany has resisted any plan that isn’t headlined by austerity and spending cuts. Now comes Germany’s central bank adding another level of criticism to the ECB plan saying it would be highly risky. Germany’s Bundesbank criticized a European Central Bank plan to lower the region’s sovereign yields through bond purchases, highlighting the rift among policy makers over ways to end the debt crisis. Spain urged unlimited European Central Bank support over the weekend after its 10-year bonds last week advanced for the first time this month. Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of euro-area finance ministers, will discuss a request by Greek Prime Minister for a two-year extension to the indebted nation’s fiscal adjustment program when he visits Athens on Wednesday. This week has EU country leaders flying all around in various meetings after their long vacations ended. Although the Bundesbank is opposed to the ECB plan, markets appear to believe there will be a plan that includes buying sovereign debt by the ECB. Meanwhile US and German interest rates are on the increase; Germany’s 10-year bund yield climbed five basis points today, to 1.54%. It jumped 11 basis points last week. The two-year note yield advanced three basis points to minus 0.017%. US interest rates last week, (10 yr note) increased 16 basis points to 1.82%, MBS rates up 10 basis points. Although interest rates have increased over the last three weeks, banks are buying huge amounts treasuries and agency debt. The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010. Banks have already bought $136.4B in Treasury and government agency debt this year, more than double the $62.6B in all of 2011, pushing their holdings to an all-time high of $1.84 trillion. Still a bearish market for interest rates although there is a potential of some retracement. Mostly technical rather than fundamental change. US interest rates increasing based on some relaxation over the EU debt crisis and with economic reports showing some strength the idea of another Fed easing has diminished. On August 30th Bernanke will deliver his opening speech at the annual Jackson Hole economic conference of global economists; his remarks will likely settle whether the Fed will ease again. Presently, the view is that the Fed won’t move to add more buying to its balance sheet. The potential exists for the rate markets to stall at these levels, or possibly fall some. The rapid recent rise in rates has so far found support when the 10 yr note hits its 200 day moving average at 1.86%. Most of the momentum measurements are at oversold levels; however, any improvement in the rate ,markets won’t likely be much---if any.