Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Getting off the a good start in the bond and mortgage markets this morning with US and Europe stock markets weaker. 9:00 had the 10 yr note at 1.72% -3 bp and testing its key 20 day average; 30 yr MBS prices improving again +15 bp and making another new record high on prices. The Fed’s decision to buy $40B a month of MBSs with no limit has sparked a run to MBSs by investors looking for better returns than can be achieved in treasury markets. There are no economic reports today but the rest of the week has a number of critical reports. Treasury will auction $99B of notes beginning tomorrow with $35B of 2 yr notes, Wed $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent Treasury auctions have seen decent bidding but not as strong as a few months ago when it looked like the EU nations were about to split apart. The ECB stepped up with its plan to by sovereign debt from struggling economies, that took away a lot of the need for safety in US and German bunds. Much of the weakness this morning in Europe’s stock markets and key US indexes is due to frustration within the EU with Spain’s dragging its feet with deciding whether it will ask for assistance from the ECB. The country needs a full scale rescue but won’t ask for it, looking for better terms? Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue. The Spanish prime minister has displayed reluctance to seek more help after Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister said last week Spain will consider a bailout if conditions are acceptable. As long as any country in the EU balks, or doesn’t in in step with Germany there will be a need for safety; today a good example but nothing as severe as six months ago when it looked like the whole region would come undone. U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, government figures show. German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Ifo’s measure of executives’ expectations declined to 93.2, the lowest since May 2009, from 94.2. A gauge of the current situation fell to 110.3 from 111.1. The debt issues in Spain, Italy and a couple of other of the 17 member EU are in recession talking Germany down with them, not to mention the global economies including the US. At 9:30 the DJIA opened -50, NASDAQ -27, S&P -8; 10 yr note at 1.73% -2 bp while 30 yr FNMAs were up 9 bp frm Friday’s close. At 10:00 the 10 yr note is testing its 20 day average at 1.72%; if the 10 can break the 20 and 40 day average (1.69%) we would expect the note to decline to at least 1.60%. This week’s economic data will be important to the technical outlook as well as the US stock indexes. A lot of chatter out there that the stock market is overdue for what some see as a major correction after the improvements over the past few weeks. In some sense the more talk of a correction coming, the less likelihood it will happen; when the majority talk more bullish is when we worry most. The Oct 30 yr FNMA coupon’s relative strength is in overbought levels suggesting some consolidation or pullback; wait for it though, the MBS market is strong.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: The bond and mortgage markets opened generally unchanged this morning with no driving news and no US data points today. MBSs had another good day yesterday but treasuries were flat; the spread between 30 yr mortgage rates and the 10 yr note is narrowing since the Fed announced its plan to purchase $40B a month of mortgage-backed securities. US treasury market this morning is slightly weaker, the 10 yr note up 1 bp to 1.78%. German 10 yr bund also weaker in price on reports that said euro-region policy makers will unveil a financial bailout program for Spain as early as next week. The German 10-year yield climbed one basis point, or 0.01 percentage point, to 1.58%. Spanish Economy Minister is in talks with European Commission authorities to facilitate a new rescue program that will be presented on Sept. 27, the Financial Times reported, citing unidentified officials involved in the discussions. If you blinked you missed Congress in session; the politicos are about to head home again after two heavy lifting weeks of constant arguing and not accomplishing much. That really should not be a surprise however, this Congress is one of the worst in history and is an embarrassment to citizens. Just 13% of Americans approve of the job Congress is doing, according to a Gallup Poll released last Friday. That’s the lowest congressional approval rating Gallup has recorded so late in an election year. The only notable piece of legislation Congress plans to send to the President from its two-week September session is a stopgap funding measure to keep the government operating from the Oct. 1 start of the fiscal year through March 27, 2013. Lawmakers plan to finish their work within the next few days. At 9:30 the DJIA opened +41, NASDAQ +18, S&P +6; 10 yr note +2 bp to 1.79%. Mortgage prices generally unchanged from yesterday’s close. The day should be quiet with no news of consequence, not much to report. On CNBC this morning most talk is about Apple’s new phone, not much to fill the airwaves this morning. . Technically the 10 yr note is still slightly bearish, while the MBS markets hold a bullish bias on the Fed’s decision to buy MBSs.

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. US treasuries early this morning were better, the 10 yr note yield down 4 bp to 1.74%. The decline fueled by disappointing Spanish 3 yr note auction pushing investors to seek safety in German bunds and US treasuries. German 10-year government bonds advanced for a fourth day, the longest run of gains this month. The German 10 yr declined 3 bp today to 1.59%, our 10 yr down 4 bp to 1.74% at 9:00 am. The yield on Spain’s 10-year bond increased nine basis points to 5.78%. The rate on similar-maturity Italian securities climbed 10 basis points to 5.02%. Weekly jobless claims at 8:30 were expected to have declined 9 to 10K, they were down 3K to 382K; last week’s claims were revised from 382K to 385K. the 4 wk average a smoother way to look at claims was up 2K to 375,750. Claims have been in a narrow range recently, not increasing but not declining, suggesting employers are not firing nor are they hiring. Until Congress and the Administration deal with expiration of the tax cuts and SS payroll cuts businesses are likely to sit tight; hard to plan when these issues hang over the economy. A Labor Department spokesman said there was nothing unusual in the state data last week. States and territories that reported an increase in claims as a result of Tropical Storm Isaac two weeks ago, including Louisiana and Puerto Rico, didn’t indicate the weather had any influence last week, the spokesman said as the data was released to the press. Dallas Fed President Fisher, one that is opposed to the Fed’s easing moves, speaking out yesterday. He said the central bank’s third round of bond purchases will probably fail to create jobs while risking higher inflation. “I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said yesterday on Bloomberg Radio’s “The Hays Advantage”. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.” Congress’s inaction on fiscal policy and excessive government regulation are holding back businesses from spending on hiring and investment, Fisher said in a Bloomberg Television interview. The Fed’s stimulus efforts, or so-called quantitative easing, won’t work because the central bank can’t address those obstacles to growth, he said. “I question the efficacy of these large-scale asset purchases,” Fisher said. “What we are doing is not having the impact on employment.” We comp[lately agree with Fisher that while the $40B a month purchases of MBSs is nice for mortgage markets but won’t create jobs over the economy. Euro-area services and manufacturing output fell to a 39-month low in September as European leaders struggled to reverse the single-currency bloc’s slide into recession. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area dropped to 45.9 from 46.3 in August, London-based Markit Economics said today in an initial estimate. A reading below 50 indicates contraction. Crude oil is trading at six week lows this morning after U.S. stockpiles climbed the most since March; Chinese manufacturing shrank and Japanese exports fell, signaling fuel demand may be slowing among the world’s biggest crude users. At 9:30 the DJIA opened -52, NASDAQ -17, S&P -7. The 10 yr note 1.73% -5 bp; 30 yr MBSs +20 bp. At 10:00 the Sept Philly Fed business index was expected at -4.0 frm -7.1 in August. As released the index was better at -1.9. August leading economic indicators was down 0.1% as expected. Interest rate lower today on Spain’s weak auction. The 10 yr has been able to hold at its 200 day average, testing it five times over the last month on any selling pressure. MBS markets continue to hold bullish trends on the Fed easing announced a week ago. This morning the 10 is testing its 20 day average at 1.72%, a break below it will add additional bullish bias. Today’s move is also fueled by weak stock markets in Europe and the US; although the DJIA did improve on the Philly Fed release at 10:00.

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. At 8:30 August housing starts and permits were reported; starts were expected up about 2.5%, as reported starts increased 2.3%. Building permits were expected to have declined 1.5%, as reported down 1.0%. Generally close to forecasts and there was no noticeable reaction to the data. Construction of single-family houses climbed 5.5% to a 535,000 rate, the fastest since April 2010. Permits for the building of one-family homes increased 0.2% to a 512,000 annual pace, the highest since March 2010. Work on apartments and other multifamily homes dropped 4.9% to an annual rate of 215,000. New home sales are still 50% below the average rate over the past 40 years. Almost 11 million families are “underwater” -- saddled with more debt than their homes are worth after five years of declining home prices. The stock indexes were trading better before the report and didn’t move with the DJIA futures up 20 points. The 10 yr note at 1.79%, down 2 bp remained unchanged while MBS prices were up 6 bp increased to +15 bp. Yesterday started strong in the mortgage markets but by the end of the day MBS prices while still holding some gains had fallen back; down 11 bp frm the level at 9:30 yesterday. There wasn’t much movement in either stocks, bonds or mortgage markets yesterday as traders still trying to get a handle on last week’s FOMC announcement that surprised markets with the intensity the Fed is going to apply to purchasing MBSs. Spain’s Deputy Prime Minister out today saying the nation will consider seeking external aid if the conditions were acceptable. Spanish bonds are headed for their biggest monthly gain in a year after the European Central Bank said it will act to reduce borrowing costs if countries request assistance. Spain is scheduled to sell as much as 4.5 billion euros of debt due in October 2015 and January 2022 tomorrow. Mortgage applications for home purchases declined in the September 14 week, down 4.0% following an 8.0% increase during the holiday shortened prior week. Applications for refinancing rose 1.0%. Mortgage rates moved mostly lower in the week including for 30-year fixed mortgages with conforming balances (under $417,500) which averaged 3.72% (with points) for a three basis point decline in the week and a new record low in Mortgage Bankers Association data. At 9:30 the DJIA opened +17, NASDAQ -2, S&P +1. The 10 yr note at 9:30 1.76% -5 bp; MBS 30 yr price +43 bp, 15 yr fixed +10 bp. At 10:00 August existing home sales out; forecasts called for an increase of 2.2%. Sales +7.8%, a nice improvement and a 2 yr high. Sales up 11% yr/yr; there are 2.47 million units for sale down 18% yr/yr. The median sales price at $187,400.00, +9.5% yr/yr. According to NAR there is a 6.1 month supply. Homes under $100K declined. Based on the data the housing sector continues its slow improvement, any gains are welcome but there is still a long way to go. Japan joins in on the increased asset buying stimulus following the US; the Bank of Japan increased its asset-buying fund by 10 trillion yen ($126B), following new debt-purchase plans by the U.S. Federal Reserve and the European Central Bank this month. Last Friday the bellwether 10 yr note yield increased and closed above its 200 day average; but it didn’t hold and the rate fell back below it on Monday. A positive sign that the 200 day average is holding any increase in rates; the average was tested on 8/16, 8/20 and 8/21 but held and rates declined on treasuries and mortgage markets. Momentum oscillators however are still slightly negative but all are improving. Japan’s easing today, the ECB debt purchase plan, and the Fed’s commitment to purchase $40B of MBSs for an extended period have strengthened the technicals in the MBS and treasury markets.

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. Treasuries and mortgages opened better this morning on weak stock markets in Europe and early trade in the US futures markets. The 10 yr note is now back below its key pivotal 200 day average on the yield (the 200 day at 1.82%), at 9:00 the 10 at 1.79%. Europe’s key stock markets all lower today taking the US indexes down ahead of the 9:30 open. At 8:30 the current-account deficit in the U.S. narrowed more than forecast in the second quarter, helped by a pickup in exports and a bigger income surplus. The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 12% to $117.4B from $133.6B in Q1. The median forecast of economists in a Bloomberg survey called for a $125B deficit. Chicago Fed President Charles Evans said this morning that the Fed is ready to keep on easing as long as it has to, to keep the economy from sliding further. Bernanke last week said the Fed will purchase $40B of MBSs each month with no mention of an eventual amount. His decision sent MBS prices spiraling higher last Thursday, but Friday and yesterday about half of the Thursday gains had been eroded as selling set in Friday and a little more yesterday. “Given the slow and fragile recovery, the large resource gaps that still exist, and the large risks we face, it remains clear that we needed a more resilient economy,” Evans said.. The Fed’s actions last week “provided a more accommodative monetary policy that can help us achieve such resilience.” The Fed is on a buying binge that has inflated its balance sheet to over $3B and likely will increase to $4B as long as the Fed has to try to prop up an economy that is being dragged down by Europe and China’s economic slowdown. Germany’s equivalent to the U. of Michigan consumer sentiment index is still weak. Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010. Economic growth in Germany will slow to +0.8% for 2012 from +3% last year, the Kiel-based Institute for the World Economy said last week. At 9:30 the DJIA opened -23, NASDAQ -6, S&P -3. The 10 yr note rate at 1.79% -5 bp 30 yr MBSs +30 bp, FHAs +35 bp, 15s +18 bp Germany’s 10-year bund yield dropped four basis points to 1.64%; our 10 yr followed suit so far. Spain’s 10-year notes fell seven basis points to 5.91%, after climbing as high as 6.06%. According the most recent data, demand for U.S. financial assets rose more than forecast in July as investors sought shelter from the debt crisis in Europe. Net buying of long-term equities, notes and bonds totaled $67 billion during the month, compared with net purchases of $9.3 billion in June, the Treasury Department said today. Since July however, the risk on flight to US treasuries has ebbed with ECB plans to buy debt from sovereign countries; although like everything else from the region, leaders still can’t get their act together. At 10:00; the Sept NAHB housing market index was expected at 38 frm 37 in August. the index increased to 40 on increased builder optimism. The report indicated what we all know, that credit conditions are restraining the housing sector. Banks continue to lend but won’t lessen their very restrictive requirements and are stuck on 80% LTVs to achieve the lower rates. The interest rate markets looking slightly better this morning but still most of our technical data remains negative for the 10 yr note. We would need a close on the 10 yr treasury below 1.70% to improve the near term outlook. MBSs continue to hold bullish bias however. To drive mortgage rates lower the 10 yr will have to improve; there is a limit how low rates of mortgages can go unless the treasury markets decline in yields. Market volatility is still with us and can erupt and anytime in these uncertain conditions. The fiscal cliff is out there and won’t see any decisions until after the November elections. It isn’t likely that Congress and the Administration will let the tax cuts expire or the SS payment increase to take effect. That said, traders will not want to press the issue in either equity or fixed income markets.

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. At 8:30 the NY Fed Empire State general economic index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August. The median forecast called for minus 2. New orders decreased to minus 14 this month, the lowest since November 2010, from minus 5.5 the prior month. A measure of shipments dropped to 2.8 from 4.1. The employment measure fell to 4.3 this month, the weakest this year, from 16.5 in August. The index of prices paid rose to 19.2 from 16.5 while prices received increased to 5.3 from 2.4. The weak report didn’t do too much damage to the stock market in pre-market trading; the key indexes were a little lower but didn’t slip on the report. Treasuries, after heavy selling last week are slightly better early today; MBS prices at 9:00 up about 15 bp frm Friday’s close. Markets should calm a little after last week’s FOMC statement that sent MBS markets screaming higher in price and mortgage rates lower. The Fed’s open-ended commitment to buy $40B a month of mortgage backed securities lit a fire under investors to continue selling treasuries and launch heavy buying of MBSs. The 10 yr note yield felt the pain, the yield on the 10 yr increased 20 basis points last week. 30 yr FNMA 3.0 coupon increased 73 basis points frm the close on Wednesday, the day before the FOMC statement. Last week’s decision from the FOMC to buy MBSs to keep interest rates low and help the housing industry, which Bernanke said was the weakest link in the economic recovery, wasn’t itself a surprise to markets as many analysts and traders were expecting the Fed would buy MBSs. What was somewhat shocking was the FOMC statement that said the Fed would buy $40B now and will continue to do it with no announced limit to the amount. Bernanke followed in the footsteps of ECB Pres. Mario Draghi; on July 26th Draghi threw down the gauntlet with his statement that the ECB would do “whatever it takes” to save the EU. At 9:30 the DJIA opened -23, NASDAQ -6, S&P -3; the 10 yr treasury note at 1.86% -1 bp. MBS prices +12 bp on 30s and -5 bp on 15s. EU finance ministers failed to agree on a timetable for a more unified banking system; sending Spain’s interest rates higher today while German 10 yr bunds saw some buying as any news that questions the EU efforts to support debt countries that isn’t positive puts investors back to safety; leaving the yield four basis points lower at 1.67%. The US 10 yr note at 1.86% Nothing left on the schedule today; the rest of the watch stock indexes; weaker will add some support to the bond and mortgage markets. After last Thursday and Friday some normalcy is welcome. The Treasury market is technically bearish; although last week the mortgage market lead treasuries after the FOMC statement, treasuries still direct interest rates.

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. Yesterday’s Fed decision to focus its new easing move on MBSs rocked markets. Mortgage prices exploded, FNMA 30 yr 3.0 coupon up 134 bp, GNMA 3.0 up 146 bp, 15 yr price +75 bp. The Fed will buy $40B a month of MBSs until the economy improves, the most open-ended Fed initiative we have seen from the Fed. No maximum or time limit; Bernanke took a page from ECB Pres. Draghi, saying he will do what it takes to get the economy growing. The Fed appears to want to stay away from treasuries since the Fed has bought $360B of treasuries with maturities over 7 yrs, that is about 65% of the Treasury issuance this year. Many were concerned more treasury buying might disrupt the Treasury market. Based on estimates, the Fed’s easing and its re-investing principal payments back into MBS purchases may absorb up to 80% of the MBS market. With the announcement yesterday estimates are the Fed will be buying almost half of MBS issuance each month; recent data indicates issuance of MBSs is running at about $140B a month. While MBS markets rallied hard yesterday, the treasury markets were generally unchanged. This morning the 10 yr note, normally the driver for MBS markets, is increasing in yield at 1.85% early this morning up 10 bp from yesterday’s close and above its 200 day average for the rate (1.82%). On more than one occasion we have used the old traders adage; ‘never say never and never say always’; we have noted a multitude of times that the 10 yr treasury note is the driver for mortgage markets. Well, at least for the moment that isn’t working. Mortgage markets after the FOMC decision yesterday are seeing yields fall while the 10 yr note yield is increasing. How long that will continue is difficult to predict; at some level the yield spread between mortgages and treasuries will narrow to a point that investors will lose their current appetite for MBSs in favor of treasuries when risk assessments make treasuries leaders again. August retail sales were +0.9% right on target, when auto and truck sales are extracted sales were up 0.8%, when auto and truck sales and gasoline prices are extracted sales were up just 0.1%. August consumer price index was up 0.6% about in line with forecasts; ex food and energy +0.1%. Yr/yr CPI +1.7%; ex food and energy +1.9%. The 0.6 increase in the consumer-price index was the biggest since June 2009 expected at 79.2% fell to 78.2% frm 79.2% in July. At 9:30 the DJIA opened +38, NASDAQ +11, S&P +4. The 10 yr note 1.81% +8 bp. 30 yr MBS -5 bp; FHA 30s +14 bp. The U. of Michigan consumer sentiment index for mid-month was much better than expectations at 79.2, up frm 74.3 and higher than 73.3 expected. It is one of the highest sentiment readings since 2007 (May was the highest at 79.30. It is a volatile index though and in two weeks we will get it again at the end of the month. At 10:00 July business inventories, expected +0.4%, increased 0.8%; another strong data point. Treading on virgin ground. The Fed’s decision to target the mortgage markets with such heavy buying, and Bernanke’s statement that the Fed would keep it up until there is improvement in the economy, buying $40B a month in MBSs is unprecedented in its scope and intensity. We have to go with it, however it isn’t clear how low mortgage rates can go which depends on investor appetite for the product.