Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Sept PPI jumped more than expected , +1.1% with forecasts of +0.8%. The core rate (ex food and energy) was better at unchanged against estimates of +0.2%. The increase in the PPI largely due to fuel costs increasing in Sept. Inflation gets a lot of ink these days with the Fed printing money at light speed but there isn’t any evidence on increases in the core rate which is where the focus is. Facing a global economic slowdown, businesses may have difficulty passing higher energy costs onto customers, keeping a lid on prices. In addition, weak demand from abroad and in the U.S. will probably prevent the cost of raw materials from flaring, limiting inflation pressures and allowing the Federal Reserve to focus on jump-starting employment growth. The core index increased 2.3% in the year ended in September, the smallest 12-month advance since June of last year. Core prices were held in check by a 0.7% drop in the cost of communications gear, the biggest decrease in more than eight years. Prices for computers and related equipment dropped 1.5%, helping to offset a 0.3% gain in light motor trucks according to the Labor Dept. Prior to 8:30 PPI data the 10 yr note rate was up 3 bp from yesterday’s close. After PPI the 10 got a bounce back to unchanged as more confirmation that inflation is still not on the radar. Inflation fears will stay even though there isn’t any evidence yet that it is increasing. With long term interest rates at these low rates, traders and investors will not ignore the possibility. Investors still willing to buy these low yields based on a model created by the Fed; the 10-year term premium, that includes expectations for interest rates, growth and inflation, was negative 0.89%. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is +0.44%. The all-time low was negative 1.02% on July 24. After four days in a row of declining stock indexes, this morning the market is looking a little better prior to the 9:30 open. Recent activity in the equity market has been discouraging; the indexes have tried to improve everyday recently only to fall apart in the late afternoon. Yesterday the DJIA held a 95 point gain in the morning but closed -18; the broader S&P index ended unchanged. In Europe this morning reports that August industrial production increased 0.6% frm July (July also was +0.6% frm June). The better report however didn’t pass through to Europe’s key stock markets; all weaker today. At 9:30 the DJIA opened +15, NASDAQ and S&P -1. The 10 yr note at 9:30 1.66% -1 bp; 30 yr MBS +2 bp. 9:55 brought the U. of Michigan consumer sentiment index was generally expected unchanged at 78.3; as reported the index jumped to 83.1, a huge increase. The reaction sent the 10 yr note up 1 bp and fueled stock indexes higher. The highest level since before the recession began five years ago, raising the odds that retailers will see sales improve. The increase attributed to rising stock and property values along with falling joblessness.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Europe’s stock markets better today pushing US stock index futures higher prior to the open at 9:30. Yesterday US stocks fell on weak earnings from Alcoa that said the demand for aluminum was declining as the global economy slows. Treasury sold $21B of 10 yr notes yesterday, the demand for the notes was very strong as was the 3 yr note auction on Tuesday. The 10 yr note yield fell to 1.69%, down 4 bp from Wednesday but MBSs didn’t improve on the day, but were better than when morning prices were set by lenders (most improved prices in the afternoon). At 8:30 weekly jobless claims dropped significantly, down 30K from last week to 339K, the lowest level since Feb 2008. The consensus estimate was for 370K claims about unchanged from the previous week. Last week’s claims were revised; the number of applications for the prior week up to 369,000 from a previously estimated 367,000. Claims typically surge at the start of a quarter as people receiving benefits reapply in order for the government to recertify their applications. The year’s increase was smaller than projected, because one large state showed a drop rather than an increase, don’t know which state yet. The four-week moving average for jobless claims, a less- volatile measure, fell to 364,000 from 375,500. Twenty-eight states and territories reported an increase in claims, while 25 reported a decrease. The bottom line; the report is somewhat flawed due to lack of data. Kind of reminds of the Sept BLS employment data last Friday. The U.S. trade deficit widened in August as slower global growth reduced demand for American exports. The gap grew 4.1% to $44.2B from $42.5B in July, Commerce Department figures showed today in Washington. Exports decreased to the lowest level since February. Sept import prices increased 1.1%, more than the 0.7% expected. Export prices increased 0.8%, double what was expected. Prices increasing while global economy is declining? Nothing significant out of Europe; Spain still refuses to ask the ECB for assistance fearing more austerity will be required. Meanwhile S&P lowered its credit rating to BBB- frm BBB+, one notch above junk bond status. Investors are shunning Spanish securities as Prime Minister Mariano Rajoy weighs a second bailout amid a deepening recession. Rajoy has held off on a decision about whether to request European Central Bank and EU bond buying to lower borrowing costs. He’s called for more details on what would be demanded of Spain in return for the support. If you are having a hard time trying to sift through the mess in Europe, don’t fret, most others are also. It is a maze of incongruities that never ends; we talk about it because whatever happens there has a direct impact on our bond and stock markets. At 9:30 the stock market opened better after three days of declines. The DJIA started +60, NASDAQ +23, S&P +9. The 10 yr note at 9:30 1.73% +5 bp; 30 yr MBS price down 14 bp frm yesterday’s close. At 1:00 Treasury will conclude this week’s borrowing with $13B of 30 yr bonds; the auction will do well as the previous two auctions have seen this week. The nice rally yesterday in treasuries hasn’t seen follow-through this morning. As noted yesterday technically the rally didn’t change the slight negative bias for the 10 yr note. The 10 yield did not break below its 20 and 40 day averages, this morning the yield is up and still above the key levels with the relative strength still slightly bearish. We continue to believe the mortgage rates are not likely to decline much more, the lows have been achieved at the end of Sept.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock index futures trading early this morning were a little soft, in Europe the key stock markets were lower on concerns of increased weakness in China’s economy. China car sales unexpectedly shrank for the first time in eight months, adding to previous reports that its economy is slowing. Yesterday Alcoa reported earnings; the CEO saying the slowing Chinese growth will cut demand for aluminum. Adding to pressure for equity markets today; The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate. Still no actual movement with Spain’s debt issues. While the European Central Bank’s plan to purchase bonds of debt-burdened countries has pushed down bond yields, officials are waiting for a bailout request from Spain before putting the program into action. Early activity in the bond and mortgage markets this morning had prices lower and yields a little higher. At 9:00 the 10 yr note yield at 1.74% +3 bp, is the highest Sept 24th, MBS prices at 9:00 -31 bp frm yesterday’s close. There isn’t much news out there today, just the same stuff; Europe, China, the fiscal cliff approaching, nothing new in any of that. The bond market does not look good from a technical perspective, unless support increases we expect more selling that will test the 10 yr note’s 200 day average at 1.79%. The 200 day has been tested twice before and in both instances it held and the 10 yr rate declined. Remember the Sept employment report last Friday? No one in the markets does anymore. No political salvos, no mention one way or the other on the markets or from pundits and media. When data is so far off estimates it doesn’t hold water for very long. Mortgage applications decreased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 5, 2012. The Refinance Index decreased 2% from the previous week. The seasonally adjusted Purchase Index increased 3% from one week earlier. The unadjusted Purchase was 12% higher than the same week one year ago. The refinance share of mortgage activity remained unchanged at 83% from the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.9% of total applications, matching the lowest level since December 2009. The government share of purchase applications was unchanged from last week at 35.5%, the lowest level since the beginning of the series. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.56% from 3.53%, with points increasing to 0.39 from 0.35 (including the origination fee) for 80% loans. The 30 year contract rate increased for the first time after declining for six consecutive weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.74 percent, the lowest rate in the history of the survey, from 3.82 percent, with points increasing to 0.40 from 0.32 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34%, the lowest rate in the history of the survey, from 3.37%, with points increasing to 0.71 from 0.36 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.88%, the lowest rate in the history of the survey, from 2.90%, with points increasing to 0.40 from 0.27 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.60% from 2.59%, with points increasing to 0.36 from 0.34 (including the origination fee) for 80% loans. At 9:30 the DJIA opened -24, NASDAQ and S&P -1. The 10 yr note yield 1.74% +3 b; 30 yr MBS price -26 bp frm yesterday’s close. At 10:00 August wholesale inventories, expected +0.4%; inventories increased 0.5% with sales up 0.9%. Two months in a row that inventories have increased. A little bounce in the stock market on the report. At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr note saw the highest demand on record. The demand for the 10 yr will influence the way the 10 trades after the auction, if demand is strong the softness in the note this morning will likely improve and take MBS prices higher from present levels. At 2:00 the Fed’s beige Book, the staff’s detailed report on the economy from the 12 districts. Also at 2:00 Treasury will report the Sept budget data, the outlook is for a flat reading (no deficit, no surplus), and it will end the 2012 fiscal year with the total deficit in the year.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets were closed yesterday for Columbus Day, the stock market traded. Key indexes were lower yesterday with the DJIA down 26.50 and NASDAQ -24. This morning in pre-market trade stock indexes were better indicating a better open at 9:30. The 10 yr note this morning at 7:00 am was up15/32 to 1.69% frm 1.74% at the close on Friday; by 9:00 however the 10 yr gave back most of the overnight improvement, at 1.72% up 6/32. Mortgage prices at 9:00 up just slightly +8 bp. There are no economic reports today. At 1:00 Treasury will auction $32B of 3 yr notes beginning three days of borrowing. Wednesday $21b of 10 yr notes and Thursday $13B of 30 yr bonds. The U.S. government has attracted a record $3.16 in bids for each dollar of the $1.59 trillion of securities it has sold in 2012, according to data compiled by Bloomberg. That exceeds the previous high of $3.04 set last year. Good demand primarily driven by safety moves against the on-going morass in Europe. The World Bank said growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2% this year from 8.3% in 2011. That is the slowest pace since 2001, according to World Bank data, and lower than a forecast in May of 7.6% The International Monetary Fund is set to revise down its global outlook for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis. European officials will move to prevent Spain from triggering a new round of convulsions as policy makers begin preparing for a summit next week aimed at easing the region’s three-year-old debt crisis. European finance ministers met in Luxembourg yesterday to discuss Spain’s overhaul effort and closer banking cooperation. Today, German Chancellor Angela Merkel makes her first visit to Greece since the crisis began in 2009. Spanish Prime Minister Mariano Rajoy travels for talks with French president Francois Hollande in Paris. EU leaders gather for a summit in Brussels on Oct. 18-19. German industrial production declined in August as the debt crisis damped economic growth and prompted companies to scale back investment. Production fell 0.5% from July, when it gained 1.2%, the Economy Ministry in Berlin said yesterday. Economists had forecast a drop of 0.6%. German bonds slipped as Chancellor Angela Merkel arrived in Athens for her first visit to Greece since the financial crisis began in 2009. The 10-year bund yield added two basis points to 1.50% today. Last Friday’s Sept employment report is still being debated; some think it was a conspiracy driven by the Administration, others see it at as flawed data. Neither is correct (I hope), I can’t wrap my arms around the theory advanced by ex CEO of GE Jack Welch. The data is surely to be revised in future reports. The markets (bonds and stocks) didn’t take the report seriously as there was only a minor improvement for the key indexes and then yesterday the meager Friday gains were taken back. The interest rate markets didn’t sell off as would be expected if the 0.4% decline in the unemployment rate in one month was taken seriously. The economy is growing at less than 2.0%, no way that many real jobs were generated in one month, no other data suggests anything near that. Traders are simply ignoring the report and moving on. The National Federation of Independent Business’s optimism index fell to 92.8 from an August reading of 92.9. Four of the 10 components that make up the gauge decreased. Confidence among U.S. small businesses cooled in September as fewer companies said they planned to hire or invest in new equipment. The fourth decline in the past five months for the measure showed business leaders are probably putting off some of their hiring and investment decisions because of a lack of clarity on tax and regulatory policy. At the same time, more companies expected better economic conditions in six months, signaling a pickup in sales and employment may take time to develop. At 9:30 the DJIA opened -24, NASDAQ -12, S&P -3. The 10 yr note +6/32 1.72% -2 bp; 30 yr MBS prices +9 bp.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; doesn’t kick off until Tuesday for the bond and mortgage markets, but stock will traded Monday. Last week selling took the 10 yr note up 12 basis points in yield however the MBS market still strong with the Fed back-stopping any significant selling. Treasury will auction $66B of notes and bonds this week beginning on Tuesday with the 3 yr, 10 yr on Wednesday and 30 yr bonds on Thursday. There isn’t a lot of critical data this week to work on. Weekly jobless claims, the Fed Beige Book and Sept PPI are about it. Friday’s employment report showing the unemployment rate that fell from 8.1% to 7.8% is still being discussed; the BLS saying 114K new jobs created in Sept but that part time workers jumped 873K, most of the increase were workers in the 20 to 24 yr old workers. Also adding to the decline in the unemployment rate, an increasing number simply no longer looking for a job. The reaction to the data didn’t excite the US equity market, the DJIA ended up just 34 points; the 10 yr note yield did increase as did MBSs but mortgages held better. The 10 yr had been weakening for a few days prior to the employment data, mostly due to relaxation over the EU mess. The Sept employment can, and should, be considered an outlier rather than an indication jobs are being generated, that seems to be what stock market investors are thinking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today’s Sept employment report wasn’t good for the bond market and only partially good for the economic outlook. The headline that will echo around the country, the unemployment rate declined frm 8.1% in July and August to 7.8%. Non-farm job growth was about in line with forecasts, +114K; private jobs were thought to be up 130K, as reported up 104K. July and August revisions to non-farm payrolls were revised higher by a total of 86K (+40K in July +46K in August). The average hourly earnings increased 0.3% after being flat in August. The unemployment rate is gathered through phone surveys by the BLS, asking if the respondent is looking for a job, has a job, or isn’t looking anymore, the drop implies more are now working. The household survey showed an 873,000 increase in employment, the biggest since June 1983, excluding the annual Census population adjustments. Some 582,000 Americans took part- time positions because of slack business conditions or those jobs were the only work they could find. The labor participation rate at 63.6% about unchanged from August. The 7.8% matches the January 2009 figure. Yesterday’s Sept National Federation of Independent Businesses painted a different view, further adding to the confusion on just what is happening in the employment sector. “September was another weak job creation month, owners remain pessimistic about the future and consequently hiring plans remain weak. Reported job creation for the past few months was negative, more workers let go than hired, suggesting a very weak jobs report for September”. No matter how it is sliced or diced, the employment report is better than what had been expected. The reaction sent the bellwether 10 yr note yield up from 1.67% yesterday to 1.72% at 9:00 and above its 20 and 40 day averages. Mortgage prices declined 25 bp frm yesterday’s close by 9:00. US stock indexes better at 9:00, DJIA up 54; not as strong as we would have expected. The remainder of the day will trade from the employment report. In Europe, the key stock markets rallied on the US employment report. Europe is still n play but not today as it is all about how markets judge the employment report. A possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. There’s no guarantee that Prime Minister Rajoy will ask for aid from the EU rescue funds and he’s facing a challenge to deliver the budget-deficit cuts pledged. Today’s employment data was so far off all estimates that it has already drawn sharp comments. Shock in some quarters; getting too testy: former General Electric Chief Executive Officer Jack Welch accused the Obama administration on Twitter of manipulating today’s employment data for political advantage. “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.” From my perspective, the headlines were very good, but only 114K new jobs created tends to temper the data. At 9:30 the DJIA opened up just 50 points, NASDAQ +12, S&P +6; not much considering the headlines, suggesting traders are not completely enamored with the report. The 10 yr note at 1.72% +5 bp and 30 yr MBS price -15 bp after being down 28 bp at 9:00. The 10 yr note high yield was 1.74% at 9:00. The initial reaction to the data this morning has driven the 10 yr note rate above its 20 and 40 day averages, the 14 day RSI has turned negative. The MBS market, although weaker this morning is holding better technically, on the Fed buying. We don’t make much of the present increases in rates unless it continues on Tuesday (Monday bond and mortgage markets will be closed for Columbus Day—stocks will trade).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages started weaker this morning with stock indexes better. At 8:30 weekly jobless claims were about what had been expected, up 4K to 367K; last week’s claims revised from 359K to 363K. Estimates for claims were for an increase of about 7K; a Labor Department official today said there was “nothing unusual” that affected today’s figures, and no states were estimated. The four-week moving average, a less-volatile measure, was unchanged at 375,000. The number of people continuing to collect jobless benefits also was unchanged at 3.28 million. Eighteen states and territories reported an increase in claims, while 35 reported a decrease. There was no reaction in financial markets to the report ahead of tomorrow’s Sept employment data. In the UK the Monetary Policy committee voted to keep its stimulus plan going as increased concerns over inflation begin to roil the opposition to the $640B bond purchase program. Bank of England policy makers also left their key interest rate at a record low of 0.5%. The ECB kept its benchmark interest rate at a record-low 0.75% after a policy meeting today, no surprise there. Speculation that ECB President Draghi will today provide more detail of the bond-purchase program announced last month. Draghi will speak at a news conference to explain the decision at 2:30 p.m. He is waiting for Spain to decide what it will do; ask for the bailout loan or not; one month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Europe’s embattled southern fringe, Spanish Prime Minister Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it. The Spanish 10-year yield reached a euro-era record 7.75% on July 25, before Draghi pledged the next day to do “whatever it takes” to safeguard the monetary union. It is 5.85% today. At 9:30 the DJIA opened +40, NASDAQ +5, S&P +4. The 10 yr note at 9:30 1.65% +3 bp in rate; 30 yr MBS price -7 bp frm yesterday’s close and down -25 bp frm 9:30 yesterday. August factory orders were expected to have declined 6.0%; as reported orders fell 5.2% and August orders revised to +2.6% frm +2.8%. No noticeable reaction to the report. The Bloomberg Consumer Comfort Index rose in the week ended Sept. 30 to minus 36.9, a three-month high, from minus 39.6 in the previous period. The pickup also included less pessimism among households in their views on the buying climate and the economy. According to the report fifty percent of those surveyed had “positive” views of their finances, the most since July and a sign consumers will maintain their pace of spending. Higher home values, rising stocks and stable gasoline prices may be alleviating some of the anxiety caused by a labor market that’s shown scant improvement. The survey matches the improvement in the Conference Board’s consumer confidence index that increased to 70.1 frm 63.1 on 9/25. Tomorrow is employment day; generally a day accompanied with increased volatility due to the data mostly well off the mark of estimates. The present forecast is that non –farm jobs increased 113K, non-farm private jobs up 130K with the unemployment rate unchanged at 8.1%. A betting person would bet that the actual data will be different than the estimates, nevertheless markets have to have something to hang on. Today, as has been the case for the past seven sessions the bond and mortgage markets are not likely to change much. The 10 yr note yield over the past 7 sessions has been tied between 1.65% and 1.61%; 30 yr MBS prices also in a narrow range of 59 bp (19/32). No matter the Fed is going to buy $40B a month of MBSs through the end of time (no total amount set by the Fed), the treasury market will still lead interest rates higher or lower. This morning the 120 yr is sitting on its high yield over the last seven sessions at 1.65%, a break out of the range over the last 7 sessions is likely to move yields either higher or lower pending which way the break occurs, probably on tomorrow’s Sept employment report. Regardless of the direction we don’t expect interest rates will change much.