Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 8:15 the ADP said non-farm jobs increased 162K, estimates were for 140K. The 162,000 increase in employment followed a revised 189,000 jump in August which was originally reported at +201K. Over the two years ended August, ADP’s initial release has understated or overstated the Labor Department’s initial private payroll figure by an average of 66,000. Goods-producing industries, which include manufacturers and construction companies, increased workers by 18,000. Construction employment rose by 10,000, while factories employment climbed 4,000. Service providers added 144,000 workers. Companies employing more than 499 workers increased payrolls by 17,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 64,000, and small companies added 81,000, ADP said. The reaction to report was not much in the bond and mortgage markets but stock index futures gained a little from levels prior to the release. Although better than expected, ADP takes a back seat to the BLS employment data that will come on Friday. Estimates for the BLS data; non-farm job growth 115K, non-farm private jobs +130K with the unemployment rate unchanged from last month at 8.0%; (the unemployment rate is actually higher, probably close to 10% if those that have stopped looking for a job were included). At 9:30 the DJIA opened +15, NASDAQ +9, S&P +3. The 10 yr note at 1.63% +1 bp with 30 yr MBS price -5 bp after being up 5 bp earlier. At 10:00 Sept ISM services sector index expected at 53.0 frm 53.7 in August, the index increased to 55.1 the highest reading since last March; new orders component increased to 57.7 but the employment component fell to 53.1 frm 53.8 (0ver 50 is considered expansion. There was little reaction to better report in the bond market, mortgage market or the stock market with the employment report on Friday, markets are likely to sit quietly until then. Services industries from Asia to Europe cooled last month after the euro-area debt crisis pulled economies including Spain and Italy into recession and damped global growth prospects. The purchasing managers’ index fell to 53.7 in September from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said today. That’s the lowest since at least March 2011. In the euro-area, a gauge slipped to 46.1 last month from 47.2 and a U.K. measure also fell. In Germany, the region’s largest economy, France and Italy, the services indicators were all below 50 last month. The gauge for Spain dropped to 40.2 from 44. Readings below 50 indicate contraction, similar to the ISM data. Europe is now back in recession. Early this morning the weekly MBA mortgage applications data; overall apps increased 16.6% frm the previous week. Refinance apps exploded up 20.0% while purchase apps +4.0%. Low mortgage rates driving apps. Rates across products are all at record lows with 30-year conforming mortgages ($417,500 or less) down 10 basis points in the week to 3.53%. Signs of a turnaround in the real estate market are contributing to consumer optimism. Home prices in the second quarter rose by 2.2% from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data released last week. There is a law on the books that requires businesses to issue potential lay-off notices to employees 60 days before they are laid off. The law, designed to remove the shock of layoffs. Now with the election coming the Office of Management and Budget has asked Lockheed not to issue the notice to lay off 123K employees due to mandated defense cuts that were mandated by Congress. Lockheed says it may have to lay off that many due to cuts. If the company doesn’t issue the notices 60 days prior it will have to wait, which will cost the company huge amounts of money to wait another month. Well, the Office of Management and Budget is telling Lockheed it will repay the company if it holds off.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened slightly weaker this morning; the US and Europe’s stock markets better. European stocks climbed for a second day, their first back-to-back gains in three weeks, as Spanish bond yields fell following a report the country will soon seek a sovereign bailout; possibly as soon as this weekend. When that actually occurs it will alleviate a little of the fear factor that is one issue that has contributed to these low interest rates. Yields on Spain’s 10-year debt retreated 14 basis points to 5.74%; it was only a few days ago that Spain’s 10 yr traded at 6.06%. Reuters late yesterday reported that the government is prepared to ask the European Union for a bailout, citing four unidentified European officials. The buying has carried over to Italy where yields are down as much as 7 bps. Today’s bid has lowered the Italian 10-yr 5 bps, and dropped it back below 5.00%. Meanwhile, light selling has the German bund yields up as much as 4 bps. A 2 bp uptick has the German 10-yr yield near 1.475%. Finally, Britain held a 10-yr Gilt auction that saw the yield fall to 1.760% (1.83% previous) and the bid/cover rise to 1.9x (1.8x previous). If Europe’s rates continue to find support, the US 10 yr note and MBS markets may be vulnerable to selling. The only scheduled economic measurement today is Sept auto and truck sales; estimates are that sales dipped a little I Sept. Data from the investment markets suggest consumers are not buying the QE 3 announced in Sept. According to Bloomberg News The Consumer Discretionary Select Sector SPDR Fund -- which includes Amazon.com Inc. and Macy’s --has lagged behind the Consumer Staples Select Sector SPDR Fund by 2.8% since Sept. 14 the day after the $40B a month MBS buy the FOMC announced the easing move. The recent weakening in discretionary stocks relative to staples differs from 2010, when Fed Chairman Bernanke’s speech at the annual Jackson Hole conference in late August foreshadowed QE2, setting off almost six months of outperformance of discretionary stocks over staples. At 9:30 the DJIA opened +28, NASDAQ +12, SA&P +3. The 10 yr note yield at 1.64% +1 bp and 30 yr MBS price -3 bp. It is Tuesday; tomorrow ADP payroll people will release its estimate for Sept private job growth, the consensus is ADP will report 140K jobs while the consensus for Friday’s BLS data is that private jobs increased 103K. There is always a difference between ADP and BLS data, but either estimate isn’t much. As the calendar clicks off toward Friday’s employment data markets are likely to stabilize with not much change. That Spain is now expected to ask the ECB for money to support its bans has, at least for the moment, relaxed the safety trade into German and US bonds and notes. Countering the relaxation is the Fed’s easing move that adds support to MBS and Treasury markets. The Fed’s current QE is substantially different from the other easing moves, previously QE 1. QE 2 had limits for the amounts of treasury and mortgage purchases; this easing is open-ended that could go on for a year or two. One year of monthly purchases adds $480B to the Fed’s balance sheet. Rate markets continue to hold bullish technicals. The 10 yr note has resistance at 1.56% and support at 1.69%. MBS 30 yr FNMA doesn’t have resistance as the price is at historic levels, support for 30 yr MBSs is at 104.59 down 119 bp frm present levels. The mortgage markets could suffer large declines and still hold the bullish outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: Europe’s stock markets better, the US stocks early this morning pointing to a better 9:30 open. Treasuries and mortgage prices generally unchanged from Friday’s closes. The calendar of data this week is full of key data with Sept employment report hitting on Friday. The minutes from the Sept 13th FOMC meeting will be released on Wednesday; they should be interesting as it was at the meeting the Fed decided to buy MBSs each month with no limit. The Fed is still pushing on that string, but any help keeping mortgage rates low is welcome. This morning on CNBC Chicago President Evans, one Fed official who wants the Fed to continue to ease, trying to justify why the Fed should continue to ease….possibly QE Infinity? The Fed wants to drive investors to stocks by keeping rates so low that eventually investors will be forced to equities. The thinking being that the economy will improve if stocks increase is difficult to understand. Spanish government bonds rose for a third day after stress tests of the country’s banking system showed a smaller deficit than earlier estimated, spurring optimism the region’s debt crisis is being contained. the Spanish banking system will need a recapitalization amounting to 59.3B euros ($76.6B). Spain’s securities pared last week’s declines after Moody’s Investors Service said the recapitalization of the nation’s banks was positive for its credit rating. Italy’s 10-year yields dropped to the lowest in a week after an industry report showed manufacturing output shrank at a slower pace in September. German bonds declined as demand for safer assets waned. The European Central Bank meets to review monetary policy this week. The unemployment rate in the euro area reached the highest on record (11.4%) as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Oil is up for a third day in New York as stress-test results bolstered confidence in the Spanish banking system, buoying optimism that Europe’s debt crisis can be contained. With the Fed committed to buy $40B a month of MBSs until the end of time inflation concerns are being debated. We don’t see any inflation on the e horizon and markets are not worrying but Bill Gross at PIMCO isn’t seeing it that way. He believes that the Fed’s flooding markets with constant money printing will set of inflation fears as the US dollar weakens. With more dollars out there the value of those dollars declines and usually increases inflation concerns, but the US and global economies are s weak inflation isn’t likely to be an issue for the dollar and the bond market for at least a couple of years. At 9:30 the DJIA opened +32, NASDAQ +13, S&P +4. 10 yr note at 1.63% unchanged while 30 yr MBS price up 26 bp after starting unchanged this morning. At 10:00, Sept ISM manufacturing index expected at 49.7, it climbed back over 50 for the first time in three months to 51.5. The initial reaction sent the DJIA up 138 points on the day. With the backdrop from Charles Evans (Chicago Fed) this morning on CNBC saying the Fed will stay in the game of easing for much longer than most think now, the 10 yr note and MBS prices initially didn’t give up on the stronger manufacturing report even with stock indexes rallying strongly, but by 10:10 the 10 yield increased by 2 bp to 1.65% but MBSs continued to hold earlier gains. August construction spending also out at 10:00 was expected +0.4% but declined 0.6%. Ben Bernanke is in town today, (Indianapolis) speaking at 12:30. Likely more of the same from is speech but we will listen closely for anything new but that isn’t likely.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Typically after 4:00 pm each day there isn’t much movement in MBSs or treasuries; yesterday that wasn’t the case. After we did the 4:30 PM report mortgage prices continued to decline, MBS prices and treasury prices continued to fall adding 20 basis points to the decline in MBS prices (on the day -44 bp), the 10 yr note yield at 4:00 1.64%, at the close 1.65%. This morning MBS prices are better as are treasury prices on weak stock markets in Europe and early weakness in US index futures. At 8:30 August personal income and spending were reported. Consumers didn’t spend in August; spending barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum. Household purchases rose 0.5%, matching the median estimate of economists, the biggest gain since February, according to data from the Commerce Department. Looks good on the headline but 0.4% of the increase was due to increased prices for food and gasoline; adjusted for the higher prices real spending increased just 0.1%. Incomes rose 0.1% against estimates of 0.2% expected in August, matching the previous month’s gain after the Commerce Department revised down those figures. July income originally reported up 0.3% was revised lower to +0.1%. The saving rate dropped to 3.7%, the lowest since April, from 4.1% in July, the lowest since last April. The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA. Spain will reveal the size of the hole in its banking system with the publication of stress test results later today (12:00 eastern), the credibility of that estimate risks being undermined by a deteriorating economic outlook. The test on 14 banking groups is a precursor to the formation of a so-called bad bank to which troubled lenders will transfer soured real estate to bolster their balance sheets. The test is to assess the damage to banks over the property crash is a condition of Spain’s 100 billion-euro ($129B) banking bailout agreed in July. Spain must present convincing estimates of banks’ capital needs and realistic valuations of toxic real estate assets to spur investment and economic growth. Spanish 10-year bonds yields climbed above 6.0% before the results of stress tests on the country’s banks; 6.0% is considered pivotal on Spain’s 10 yr debt. Over 6.00% and investors get worried, under it seems to increase enthusiasm that Spain can avoid defaults. At 9:30 the DJIA opened -63, NASDAQ -13, S&P -6. 10 yr note at 9:30 1.62% -3 b; 30 yr MBS price +14 bp frm yesterday’s close. At 9:45 the Sept Chicago purchasing mgrs. index was expected at 52.8 frm 53.0 in August; as reported the index the index plunged to 49.7, the lowest reading on the index since Sept 2009. The DJIA dropped 40 points on the news to over -100 on the day. MBS prices got a small boost on the reaction to the very weak report from the Mid-West reading on manufacturing, nothing for the 10 yr note. Index readings under 50 indicate contraction, the report this morning adds belief that manufacturing isn’t going to add much to economic growth. Next week markets will get the national ISM manufacturing index and the national services sector reading. At 9:55 the Sept final U. of Michigan consumer sentiment index was expected at 79.0 frm 79.2; as reported the index hit at 78.3. While 78.3 looks bad compared to the mid-month reading at 79.2, it is substantially better than at the end of August which was 74.3. The index I subject to volatility, that it was up on a month to month basis it is a better report but still weaker than what had been expected. The reaction in the stock market dropped the DJIA t0 -111. There was no improvement in MBSs or treasuries on the report. The bond and mortgage markets continue to consolidate recent improvements; today not much enthusiasm in either market so far after selling yesterday. The longer outlook continues to look good; however we remain somewhat skeptical that the interest rate market don’t have much more declines ahead. We believe rates will fall more but won’t be much more as rates are so low that there is little likelihood they can go a lot lower.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A flood of data at 8:30 this morning has markets scratching heads. Weekly jobless claims were a lot better than thought, -26K to 359K with estimates at 380K. August durable goods were expected down 5.1% and with transportation excluded -0.3%; as released orders fell 13.2% and ex transportation -1.6%. Orders for non-defense capital equipment excluding airplanes rose 1.1% after decreases of 5.2% in July and 2.7% in June. Q2 GDP final revision was expected unchanged from the preliminary last month at +1.7%, as reported Q2 GDP was revised lower to +1.3%. Claims were better but durables and Q2 GDP weaker suggesting Q3 won’t be as good as many were thinking. Prior to the 8:30 data the DJIA futures was up 60; by 9:00 the index added another 10 points to +70. The 10 yr note rate at 9:00 at 1.64% +3 bp with 30 yr MBSs -9 bp. Spain’s bond market improved a little today with the 10 yr yield declining 3 bp after a jump the last couple of days as protests against austerity roiled markets. Italian securities rose as borrowing costs fell at a 6.65 billion-euro ($8.6 billion) auction of five- and 10-year debt. German 10-year bund yields were little changed after falling to the lowest level in three weeks. Spain is set to announce its budget defying anti-austerity protesters and dissent from regional leaders as he struggles to convince investors he can contain the crisis and avoid asking for a full bailout. The bond market is higher in rates this morning for the first time in 8 sessions, the longest sustained rally since Dec 2008. Bonds have been supported as investors returned to some safety moves with Greek and Spanish citizens protested and clashed with police over austerity cuts that are driving unemployment to 23% in Spain. Spain and Italy are trying to avoid asking the ECB for a bailout, but the headwinds are severe. Money is leaving Spanish banks in buckets as investors continue to exit, adding to the potential that a bailout frm the ECB is unavoidable. At 9:30 the DJIA opened +46, NASDAQ +11, S&P +5. The 10 yr treasury note at 1.65% +4 bp. 30 yr MBS price -29 bp. MBS prices have increased for 8 days an due for a pullback. At 10:00 August pending home sales (contracts signed but not yet closed) by the NAR. Pending sales were expected up 1.0%; as reported sales declined 2.3% yr/yr though up 10.7%. The NAR saying the decline is a result of small inventories especially in lower cost homes. The initial reaction to the report improved the mortgage market slightly and drove the stock indexes off their early strong levels. At 1:00 this afternoon Treasury will finish the week’s auctions with $29B of 7 yr notes; we expect the auction to see decent demand. The decline in mortgage prices this morning doesn’t signify any change in the overall direction in prices. It was very likely to occur as we mentioned on Tuesday, the bond and mortgage markets were due for a pullback. All that was needed was a reason, this morning Europe looks more relaxed for the day and US stock indexes were also due for a rebound. Even the soft durable goods data this morning didn’t drop the stock indexes but like the bond market we expect the indexes to continue to decline with a real potential of a major decline in the next month. Interest rates should continue to fall with our target for the yr note at 1.56% (1.63% now).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US and German interest rates continued to decline today and stock markets lower in Europe and early trading this morning had the stock index futures weak after a strong sell-off yesterday. There are various reasons the US stock market saw selling yesterday; anticipated earnings in Q3 are expected to be lower, Europe’s relentless inability to deal with its debt crisis and the realization that the Fed’s QE3 announced two weeks ago won’t add many new jobs---if any. That the Fed continues to buy treasuries and MBSs is expected to add jobs has been the most mis-understood belief in years is finally finding believers as the evidence is irrefutable. Yesterday Philadelphia Fed Pres. Plosser and Richmond Fed Pres. Lacker waded in with comments that easing from the Fed isn’t going to accomplish what Bernanke is doing. Lower interest rates have little impact on economic improvement especially when the financial cliff of tax increases and an end to the SS payroll tax cuts loom heavily and trump anything the Fed can do. In Europe yesterday, riots and protests in Spain increased moves into safe German debt and US agency debt. With the Fed’s recent decision to buy $40B a month of MBSs with no announced cap on the amount has made the MBS markets a safe place with higher returns than US treasury rates; MBSs appear to be the place now for investors to find safety. In Spain, the prime minister has struggled to persuade people to accept the deepest austerity measures on record. Unions and protest groups are demanding a referendum on cuts announced by the government. Spain is still dragging its feet in asking the ECB for help, trying to carve out a better deal. Spain’s interest rate climbed above 6.00%, approaching the levels seen before European Central Bank President Mario Draghi offered to buy struggling nations’ debt. Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.” Don’t forget Greece in this never-ending debt crisis. Schools, hospitals, ferries and government services shut down in the first walkout since February. Shops will close from 3 p.m. today to let staff take part in demonstrations. Police fired tear gas near the Greek Parliament after protesters threw fire-bombs as thousands of people joined a strike opposing wage cuts and austerity that Prime Minister Samaras said are vital to keep the euro. Demonstrators streamed into the central square in Athens, opposite the Parliament House, shouting slogans such as “struggle, clash, overturn: history gets written by those who disobey.” The renewed tensions in the EU that had been softened recently on comments from ECB’s Draghi that the bank is ready to buy sovereign debt of Spain Italy and other debt strapped counties, and approval of the plan by Germany’s parliament to do so has ended for the time being. The region is back again as a dominate factor for global equity and bond markets. Europe’s stock markets declining, the US stock market teetering on the possibility of a major sell-off and another run to historic low interest rates; all being driven by the debt crisis in the EU. After weak trading early in US stock indexes at 9:30 the DJIA opened better; the DJIA up 15, NASDAQ -4 and the S&P-1. The 10 yr note at 9:30 at 1.65% -2 bp with 30 yr MBS price +12 bp. The weekly MBA mortgage applications were better last week as mortgage rates fell. The purchase index rose 1.0% in the September 21 week with the refinance index up 3.0%. Mortgage bankers are busier with refinancing than they are for purchases with refinancing making up 81.2% of total applications which is the highest percentage since early August. Down nine basis points in the week, the average 30-year fixed mortgage rate for conforming loans ($417,500 or under) is 3.63% which is a new low for the Mortgage Bankers' survey. August new home sales at 10:00 were expected to have increased 2.1% to 380K units; July sales were up 3.6% at a 372K annualized rate. As reported sales were generally unchanged at 373K units, July at 372K, -0.3%. At 1:00 Treasury will auction $35B of 5 yr notes, yesterday’s 2 yr note auction was OK but not especially strong. Today’s 5 yr should see better demand. Technically the 10 yr note has finally cracked its key averages; now the yield is under the 200, 20 and 40 day averages with the relative strength index moving into bullish territory. The MBS markets, if viewed on their own are extremely over-bought the 10 yr isn’t and negates the over-bought technicals that characterize MBS trading. As long as the 10 yr isn’t running over-bought readings we can ignore the current MBS technical reads; the 10 is still the driver for directional moves in the MBS markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 9:00 this morning the 10 yr note yield fell to 1.69% -2 bp and at its 40 day average. Mortgage prices opened unchanged from yesterday; the stock indexes were better pointing to a stronger opening at 9:30. In Europe’s continuing soap opera; Greece is facing a financing gap that won’t be solved by budget measures being discussed, International Monetary Fund Managing Director Christine Lagarde said yesterday. Nobel Prize-winning economist Joseph Stiglitz said euro members will have to share debts and speed the implementation of a banking union to prevent a situation in which “the whole system falls apart.” In Germany Merkel can’t move without problems from her own political party, providing more money from Germany to feed Greece. Spain continues to hold off asking for the ECB to buy its debt, the country has been able to sell its debt in the markets at decent rates so leaders are reluctant to do what in the end has to be done. In the meantime ECB Pres. Draghi’s plan to buy the debt of cash- strapped nations boosted Spanish bond values and cheapened German debt. Demand for German debt, perceived to be among the safest securities, is being sustained as Spain weighs a sovereign bailout to supplement a 100-billion euro ($129B) bank rescue package and as Europe’s economy falls toward recession. The German 10 yr bund is at 1.52% compared with the US 10 yr note at 1.70% this morning; in late July before ECB’s Draghi said the bank would do whatever it takes to save the euro the 10 yr German 10 yr yielded 1.127%, the US 10 yr was at 1.41%. Both yields have increased since then on optimism the EU will dodge the bullet. Although interest rates did increase on the Draghi announcement the rate markets have improved from the high level seen two weeks ago when the US 10 yr hit 1.86%. The July Case/Shiller home price index at 9:00 was better than expected; the 20 city price index increased 1.2% frm July 2011, the biggest 12 month increase since August 2010. Shiller saying on CNBC that “housing is back”. He said inventories still low but Shiller is saying the data suggest prices may be increasing. Home prices adjusted for seasonal variations increased 0.4% in July from the prior month. Unadjusted prices climbed 1.6% from the previous month as all 20 cities showed gains for a third consecutive month. At 9:30 the DJIA opened +30, NASDAQ +10, S&P +4. The 10 yr note after dropping to 1.69% earlier was back to 1.71% and unable to crack its 40 day average at 1.69%; 30 yr mortgage price up 7 bp frm yesterday’s close. At 10:00 the Sept consumer confidence index was expected at 63.2 frm 60.6 in August, earlier this week the estimate was for 63.0 but analysts revised their forecasts a little higher. As reported the confidence index jumped to 70.3 frm 61.3 in August, the best level since last February. Prior to the release the DJIA had fallen back to +15, the response to the strong confidence jumped the index back to +51 and took the 10 yr note up to 1.73% +2 bp on the day. A little heads up; while the longer outlook for mortgage rates remains quite positive, the current condition I the MBS market is becoming overbought and may be ready for a correction. If there is a pullback it won’t likely change the overall optimism and would present buying opportunities for investors. The 10 yr note isn’t as overbought as MBSs but it isn’t showing much strong support either. With the Fed printing money as fast as it can it isn’t likely interest rates will increase much IF selling were to occur.