Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Europe’s stock market fell today and added to the negative attitude in US markets. The key US indexes at 9:00 down hard, the DJIA down 146 points. Earnings of 69% of S&P companies have been better but sales forecasts weaker, investors backing down with just two weeks until the election which at this point is the closest in many years. Moody’s downgraded some of the regions in Spain today setting up selling in the key markets in Europe. The euro dropped from a five-month high against the yen on the credit ratings of five Spanish regions and French industrial confidence fell to the lowest in more than three years. According to a newspaper in Spain the government told the EU it would miss its budget deficit target this year. The Spanish government told the EU its budget deficit in 2012 will be 7.3% of gross domestic product, exceeding a target of 6.3%. Last night’s debate on foreign policy, while not a love fest, did find the two candidates with common ground. Republicans think Romney won it, Democrats think Obama won it. It therefore was a tie. The 10 yr note is chopping around between 1.76% and 1.83% for the last six sessions; the key 200 day average is at 1.78%. This morning the 10 is trading at 1.77% after closing yesterday at 1.81%. 30 Yr MBSs weaker this morning following the 10 yr as they always do; yesterday the price for 30 yr mortgages was down 22 bp, this morning up 22 bp. No direct trend in either the 10 yr or mortgages. In the next two weeks it is likely there won’t be much change in the bond and mortgage markets with the election still up for grabs. There are no economic reports again today. The FOMC meeting is getting underway, it’s a two day meeting with the policy statement at 2:15 pm tomorrow. Whenever the Fed is in play there is always some wild speculation about what may be expected; someone yesterday floated the idea the FOMC will announce an increase in the amount of MBSs the Fed agreed to buy at the last meeting. $40B a month is the amount the fed is currently committed to, it isn’t likely the FOMC will add more to the monthly buying, but that doesn’t stop gossip. This afternoon Treasury will auction $35B of 2 yr notes beginning three days of borrowing. Tomorrow $35B of 5 yr notes, Thursday $29B of 7 yr notes. At 9:30 the DJIA opened -166, NASDAQ -32, S&P -17. The 10 yr note 1.77% -4 bp; 30 yr MBS +37 bp. The stock market is being pummeled this morning; yesterday the DJIA was down 100 points in early afternoon but in the final hour the index climbed back to close +2 points. The reversal yesterday was apparently due to a big buy program on Apple, this morning it is back to selling on weaker earnings outlook, the coming fiscal cliff, the election and what is almost a given, the end to the payroll tax cut at the end of the year. As usual, weaker stock market drives interest rates lower. Although the bond market is stronger this morning, the technicals are still slightly bearish. The relative strength index bearish and the 10 unable so far to hold below its 200 day average. While soft, the rate markets are subject to how investors see the next couple of weeks and the policy statement from the FOMC tomorrow afternoon.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com After the price gains on Friday the interest rate markets have retreated this morning; the 10 yr note yield fell 7 bp on Friday, at 9:15 up 4 bp, 30 yr MBS prices increased 39 bp Friday, this morning -19 bp. Still better than the close last Thursday but the negative perspective is still there. This morning in pre-market trading stock indexes were trading better, however still not above the fair values frm Friday’s strong sell-off (-208 DJIA). The EU running on its tread mill, nothing of substance over the weekend. Interest rates in Spain are higher today. Spain’s 10-year yield rose five basis points, or 0.05 percentage point, to 5.42%, the biggest increase since last Monday. The Italian 10-year yield dropped three basis points to 4.74%. An official said the debt agency will “revise and recalibrate the issuances in light of the retail sale’s success.” The sale attracted bids for 18 billion euros, double the two previous offers combined. The debt agency’s review aims “in particular at reducing the amount of short-term issuances,” said the official, who declined to be identified. The German 10-year bund yield rose four basis points to 1.63% after climbing 15 basis points last week. Volatility on German bonds was the highest in euro-area markets today. At 9:30 the DJIA opened -24, NASDAQ unch, S&P -1. The 10 yr note rate at 9:30 1.80% +4 bp; 30 yr MBS price -8 bp after starting down 18 bp at about 8:30. There are no data points today; the day’s activity in the bond and mortgage markets will be driven by the way the stock market trades. Friday saw a huge sell-off in the stock indexes and in turn the bond and mortgage markets rallied nicely. Q3 earnings and forecasts are seen as softer than what traders were expecting. Tonight’s Presidential debate, the last of three, may be pivotal as the topic is foreign policy. Going into the debate the most recent polls have the two candidates even. The recent jump in interest rates has the bellwether 10 yr note playing back and forth around its 200 day average. The third time since late August the note has increased to the average, so far there is support when it gets to that strong longer term technical level. The previous two forays above the 200 have led to yield improvements, around the 1.80% rate the 10 finds support; however each rally off the 200 day average has been higher than the previous rally indicating rallies in the bond and mortgage markets are not as strong, failing to match the preceding rally----not a positive outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stocks following Europe’s markets, lower this morning. Treasuries and MBSs are not rallying much, but are slightly better than yesterday’s closes. European stocks fell for the first time in five days, the European Union summit failed to discuss further financial assistance for Spain. European leaders committed to their goal of creating a regional bank supervisor by year-end. The European Union will seek to agree on a framework that makes the European Central Bank the main bank supervisor by Jan. 1, according to conclusions of the summit meeting released early today. Yields on benchmark 10-year German bunds dropped three basis points to 1.60%, the US 10 yr also slipped 3 bp to 1.80% at 9:00 am. The global economic outlook has improved in the last few weeks with most measurements better than forecasts. Data this week showed China’s industrial production, retail sales and fixed-asset investment accelerated in September, U.S. housing starts jumped to a four-year high and an index of American leading economic indicators rose in September by the most in seven months. The October Philly Fed business index climbed back above zero, the pivot for expansion and contraction, to+5.7; not a lot above the zero level but forecasts were for +0.5 frm -1.9 in Sept. Today is the 25th anniversary of the 1987 stock market crash. For those of us that were involved I it, it brings back memories---some good but mostly bad. Managing mortgage interest rate risk was a new thing for mortgage bankers; hard to understand and wasn’t being used much by The Street. Interest rates were increasing prior to the crash, we were heavily short the bond market in a cross hedge against long mortgage positions, as rates increased the short side of the hedge worked well, profits from short bond futures were offset by losses in the MBS market. The key was managing the spread between movement in the MBS market and treasuries; we adjusted the levels of the hedges based on the basis change. For the previous few years it worked well, removing the risk of changing market conditions. Then the crash; as I recall it we saw a change coming the previous few days before the actual crash and began unwinding the hedges somewhat, but not all of them were lifted. When the equity market finally crashed losing about 40% of value, I was caught short in three days of limit up moves in the bond market---could not get out. Clients were panicking with daily margin calls of as much as $500K a day; it took two weeks to work out of it but in the end we were able to work it out with no losses to clients but the experience cost me a lot of clients, the kitchen became too hot. I took a few days off and checked into an asylum. The problem with hedging in the futures markets is that margin calls must be met with cash immediately each day while the value that was increasing on the other side took as much as two months to get; the MBSs had to be packaged and delivered before the gains were put in the bank. At 9:30 the DJIA opened -60, NASDAQ -16, S&P -6. 10 yr note at 1.81% -2 bp; 30 yr MBSs +13 bp frm yesterday’s closes. Within 15 minutes the DJIA was off 100 points. No running back to the bond market however, the 10 yr note has not changed much even with the equity market being pummeled early today; in a sense confirming the bearishness that is now embedded in fixed income markets. At 10:00 Sept existing home sales were expected down 1.5% to 4.75 mil units. As reported sales were down 1.7% but at 4.75 mil as expected; sales up 11% yr/yr, the 15 month the yr/yr has been better. The median sales price at $183,900 +11.3% yr/yr. Inventory to sale ratio under 6 months’ supply. 3.32 mil units -20% yr/yr. Foreclosed properties in the hands of the banks distort the sales price average and inventory levels. Overall the report didn’t generate any initial interest in the markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to this morning the benchmark 10 yr note rate has increased 12 basis points in yield over the previous two sessions and 18 basis points in the last three sessions. A massive exit from fixed income investments and into the equity markets. Easing of tensions in the EU with Spain’s debt rating re-affirmed by Moody’s that it is still investment grade debt and increasingly better data on the US economy---the two issues that have turned interest rates around. 30 yr mortgage rates over the last three sessions are up 10 basis points. This morning the bond and mortgage markets are rebounding a little from the recent strong selling. The 10 yr note at 9:00 at 1.79% -3 bp and MBS 30 yr price up 17 bp in price, not much but anything is better after yesterday’s price beatdown of 55 bp and 24 bp on Tuesday (total 79 bps). At 8:30 weekly jobless claims were expected to be up 36K after the bad data out last week; as reported claims were up 46K back to 388K. The “consensus” estimate was for claims was 365K. Typically at the beginning of a quarter there is an increase in claims due to adjustments, last week clams fell by 30K as one state didn’t report. The gains this week are higher than forecasts but the four-week moving average, a less volatile measure than the weekly figures, rose to 365,500 last week from 364,750. The average number of claims over the past two weeks was in line with the four-week average, indicating little change in the pace of firings outside the seasonal swings. Spain’s bonds rose for a third day as the nation raised more than planned at a debt sale, while European stocks fluctuated before a two-day summit of leaders in Brussels. Spanish 10-year yields fell to a six-month low and were at 5.41%. As long as Spain’s yields continue to decline the US bond market will struggle to improve. Investors are less concerned about a debt crisis boiling over than just a few weeks ago; no reason now to stay in treasuries with tensions easing and US economic data improving. The EU summit meeting Brussels begins tomorrow; in the past the summit meetings didn’t accomplish much. At 9:30 the DJIA opened -20, NASDAQ -9, S&P -3. The 10 yr note at 1.80% -2 bp; 30 yr MBSs +17 bp in price. 9:45 this morning brought the Bloomberg consumer comfort index at -34.8 frm -38.5. Not a huge improvement but does confirm the U. of Michigan sentiment index and the Conference Board’s consumer confidence improvements. The index is the highest since last April. At 10:00, a few minutes ago, the October Philadelphia Fed business index measuring the situation in the NE region, was expected at +1.0 frm -1.9 in Sept and -7.1 in August; the overall index increased to 5.7 above zero and back to slightly more bullish activity. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. There was little initial reaction to the better index reading. Sept leading economic indicators was expected up 0.2%, as reported it was up 0.6% but August indicators were revised lower, from -0.1% to -0.4% kind of negating the better Sept data. No matter how we look at it, the US and global interest rates are increasing. Technically the 10 yr cracked its 200 day average yesterday, unless it rallies back in the next day or two the outlook is that the note will continue to increase to its recent high on 9/14 at 1.89%. MBSs also technically weak now and will continue to see prices fall unless the 10 rate falls back. Don’t fight the tape.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com More selling in the treasury and mortgage markets again today taking the 10 yr note to 1.77% where the 200 day average resides (1.78%). MBS prices early were down 21 bp from yesterday after declining 24 bp yesterday. The technical picture has changed to bearish, however with the recent volatility it is still too soon to believe that rates have finally bottomed and will continue to increase. This morning it isn’t the stock indexes that are driving rates higher, at 8:45 the DJIA up just 4 points. The push to higher rates is being driven by much better economic reports (retail sales, improvement in the housing market outlook) and relaxation over debt problems in the EU. Spain’s bond market is better on increasing belief it will ask for assistance frm the ECB to buy its bonds in the open market. Interest rates have been driven down on a weakening US economy and safety moves against the potential of debt defaults in Italy and Spain; presently those are off the table. This morning at 8:30 more solid news for the housing sector. Sept housing starts were expected up 2.4% to 768K units (annualized); starts jumped 15% to 872K units. Sept building permits were thought to be up 1.5% to 815K units, permits exploded 11.6% to 894K. Starts were up to the highest levels in 4 years, the best since July 2008, more evidence that the sector is recovering. The number of permits increased by 45.1% since September 2011, the biggest annual jump since 1983. Construction of single-family houses jumped 11% from August to a 603,000 rate. Work on multifamily homes, such apartment buildings, increased 25.1% to an annual rate of 269,000. Yesterday the Oct NAHB housing market index increased for the fifth consecutive month in a row. Hard to argue that housing isn’t recovering given the recent data. Spain’s government bonds advanced, pushing 10-year borrowing costs to the lowest in more than six months, after Moody’s Investors Service said it would keep the nation’s credit rating at investment grade. Italian and Portuguese securities also rallied amid optimism the euro region is making progress to contain the debt crisis. Moody’s cited a reduction in the risk of Spain losing market access because of the European Central Bank’s willingness to buy the nation’s bonds. German 10-year bunds fell for a third day (price); the yield climbed seven basis points to 1.61%, the highest level since Sept. 21. Spain’s yield fell 29 basis points, or 0.29 percentage point, to 5.52%. The EU summit meeting begins tomorrow. At 7:00 this morning the weekly MBA mortgage applications data: purchase applications are on the rise, up 1.0% in the October 12 week for a fourth straight gain and at its best level since June. This index is pointing to strength for underlying home sales. The refinance index, which has been near three year highs, fell back 5.0%. Rates remain extremely low, at 3.57% for conforming loan balances ($417,500 or less). At 9:30 the DJIA opened -39, NASDAQ -10, S&P +1. The 10 yr at 1.77% +5 bp while 30 yr MBS price -6 bp in volatile trading so far this morning (-27 bp at one point this morning). There isn’t anything on the calendar for the rest of the day. The bond market is testing critical longer term technical levels; the 200 day average is at 1.78%, the 10 briefly hit it then backed down to 1.77%. The 200 has held selling two times, the first on 8/20 and the second on 9/13; in both cases the 10 yr note then launched strong rallies. Will the 200 hold the rate again? If not the 10 is likely to continue to work up to 1.88% to the next resistance level. MBS’s will follow, don’t be taken in that just because the Fed is buying $40B a month of MBSs that mortgage rates will diverge from the direction of treasuries. The MBS market is technically stronger than treasuries on the Fed buying, this morning holding its support level at 104.69 bp.

Mortgage Rates

Morgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Not a good start this morning; the bond and mortgage markets opened weaker with US and Europe stock markets rallying again today. At 9:00 the 10 yr note up 3 bp to 1.70% and 30 yr MBSs -24 bp. European stocks had the first back- to-back gains in a month, commodities rose and the euro strengthened as two German lawmakers said the country is open to Spain seeking a precautionary credit line. Growth in the U.S. economy will probably pick up to 3.5% next year, reducing the unemployment rate to near 7%, Federal Reserve Bank of St. Louis President James Bullard said late yesterday. Headlines like those are not positive for long term interest rates. Spain’s 10-year bonds rose, pushing the yield five basis points lower to 5.77% on the comments out of Germany. German bunds fell, pushing the yield seven basis points higher to 1.54%. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which predicts economic developments six months in advance, climbed to minus 11.5 from minus 18.2 in September. All the key news early this morning has been negative for the US interest rate markets. At least for the moment the economic outlook has taken a turn for the better. As far as comments from St. Louis Fed Pres. Bullard, it can be taken with a little salt; Fed officials are all over the place on their individual views about the future of the economy. Nevertheless, as we have noted many times, the minute there is a turn in the economic outlook interest rates will climb. It has been our view for the past month that mortgage interest rates are not likely to decline much frm the lows seen a few weeks ago. 8:30 data, Sept CPI was general in line; up 0.6% overall and +0.1% ex food and energy, the core was expected to be up 0.2%. Inflation gets a lot of ink but there isn’t any sign of it now or in the immediate future. At 9:15 Sept industrial production and capacity utilization were released. Production expected up 0.3%, increased 0.4%. Factory use it on target at 78.3%. There was no immediate reaction to the data this morning; all focus on Europe and US equity markets. At 9:30 the DJIA opened +69, NASDAQ +9, S&P +7. The 10 yr note at 1.70% +4 bp; 30 yr MBS price -27 bp frm yesterday’s close and down 42 bp frm 9:30 yesterday. The final data today; at 10:00 the Oct NAHB housing market index, expected at 41, as reported it increased to 41 frm 40 in Sept. This is the fifth straight gain and lifts the index to a five-year high. An optimistic outlook is now the dominant factor lifting the index as six-month sales expectations are up a big eight points to 51. The component for current sales, at 42, is up a solid four points in the month. Although bonds and mortgages are lower in price this morning, both continue to trade in very tight ranges. On one side the current view is looking a little better for the economy, at least based on Bullard’s comments yesterday and the strong retail sales in Sept, on the other side helping to keep long term rates from increasing much the Fed is pumping a lot of money into the system. $40B a month of MBSs and continuation of Operation Twist are countering fears of inflation and the belief that Europe’s debt crisis may be easing. The economy still has a lot of headwind however; who will be elected and how will Congress handle the fiscal cliff coming at us quickly?

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 weaker this morning on stronger stock indexes in the US and Europe. At 8:30 Sept retail sales were better than expected, up 1.1% overall and up 0.9% when auto sales are extracted, both better than forecasts. August retail sales were revised to +1.2% frm +0.9%. Also at 8:30 the Oct NY Empire State manufacturing index frm the NY Fed, a little better at -6.16 frm -10.4 in Sept. The new orders component -9 frm -14 in Sept; employment fell to -1.1, the lowest this year and frm +4.3 in Sept. In early trading the 10 yr note rate at 1.68% up 2 bp frm Friday while 30 yr mortgage prices at 9:00 were -4 bp frm Friday’s close and so far successfully holding at its 20 day average. Fedspeak this afternoon; 12:45 Jeffery Lacker, at 1:10 James Bullard. Unlikely anything new, Lacker has been opposed to most of the Feds’ recent easing and policy statements while Bullard seems to ride the fence with differing views as the situation changes. There are a number of key economic releases this week that may cause an increase in volatility in US financials pending how the data is reported. The US stock market took a big hit last week with the DJIA down about 280 points, early this morning the index traded better along with Europe’s markets better. The key indexes were better prior to the 8:30 economic data but didn’t add to the gains on the stronger retail sales but the Empire data was a negative with employment the lowest reading this year. Still look like equity markets are struggling. Spanish 10-year bond yield rose eight basis points to 5.71% and the equivalent Italian yield was five basis points lower at 4.94%. A report from China showed inflation in the world’s second-biggest economy was close to the slowest pace in two years last month. Consumer prices rose 1.9% from a year earlier, while the producer-price index fell 3.6%. At 9:30 the DJIA opened +26, NASDAQ +10, S&P +2. The 10 yr and MBSs recovered from early low prices on strong retail sales; at 9:30 the 10 yr unchanged at 1.66% after increasing to 1.68% earlier/ 30 yr MBSs were down 12 bp on 8:30 data but by 9:30 back to unchanged frm Friday. At 10:00 August business inventories were up 0.6%; estimates were for an increase of 0.5%. No reaction to the report. Later this week the EU will hold another of its summit meetings; not sure what if anything will be accomplished as the region continues to push on the string with endless meetings and comments that still haven’t taken the region back from the cliff. That said however, interest rates in Greece, Spain and Italy have been falling recently suggesting there is progress being made. Tomorrow another Presidential debate. After the first one markets will likely take notice as the polls appear to be about even. By 10:00 this morning, after opening better the key indexes are now well off their earlier high at 9:30 open. If the indexes turn negative look for MBS and treasury prices to improve. The rate markets continue to hold minor positive technicals; MBSs holding at their 20 day moving average while the 10 yr note hangs precariously below its 20 and 40 day averages but so far hasn’t been able to move away from them. Still good but it wouldn’t take a lot to turn the bond market back to less optimistic outlook.