Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the stock indexes were trading about unchanged while the Treasury and mortgage markets were better. At 9:00 the 10 yr note yield at 1.69% -3 bp, 30 yr MBSs +18 bp. Friday the bond and mortgage markets traded weaker in the morning then improved in the afternoon with many lenders re-pricing better; this morning the mortgage market better than Friday’s closes. Obviously the markets (and the world) are focused totally on the election tomorrow. The polls continue to be close and regardless of which poll one looks at all are within the margin of error. Most of the talk today is centered on the what if debate; what if Romney wins, what if Obama is re-elected? What is the outlook for the coming fiscal cliff that will increase all taxes if not extended? How will the make-up of the next Congress effect the necessary spending cuts and higher taxes be resolved, or will the gridlock continue? The unanswered questions are many; who will be the next Fed chairman, Bernanke’s term ends in 2014? In the meantime, until the election results are in the markets should trade quietly. At 9:30 the DJIA opened -23, NASADAQ -3, S&P -3. 10 yr note 1.69% -3 bp. 30 yr MBSs +23 bp frm Friday’s close. The only data point today; at 10:00 Oct ISM services index was expected at 54.9 frm 55.1 in Sept. As released the index fell to 54.2; still above 50 indicating expansion but like most of the other economic measurements not indicating a lot of improvement. The data added to selling in the stock markets. Europe still lurks in the background these days and Greece is returning to the front trying to get its budget in line with requirements in order to get another bail-out from the EU. The region has been quiet over the last couple of weeks; no real changes and nothing concrete coming out. Spain and Italy are the giants in the room in terms of getting assistance to keep their banks from defaulting. Spain remains reluctant to ask for aid from the ECB to buy its bonds to keep rates from increasing. Looking for the best deal the country can negotiate with the ECB keeps global markets focused. German 10-year bunds rose for a fourth day, pushing the yield to 1.43%, the lowest in more than a month, as investors sought Europe’s safest government securities. Spain’s 10-year yield climbed 10 basis points to 5.76%, the highest since Oct. 17, and adding to last week’s increase of seven basis points. NY, New Jersey and the rest of the region that suffered the brunt of last week’s storm are continuing to be without power in much of the area and gasoline is now being rationed in New Jersey. Now the weather is turning colder and there is another storm coming according to forecasters. A nor’easter may bring gusty winds, heavy rain and even snow this week across much of the U.S. East Coast that was hit by Hurricane Sandy last week. Winds of 45 to 55 miles (72 to 89 kilometers) per hour are expected to accompany coastal flooding and precipitation in New Jersey as the storm moves up the coast from Nov. 7 to 9, The economic and financial impact yet to be fully assessed. Tomorrow the election, according to some reports there are some precincts that are not likely to be up and running, then there is the difficulty of getting to the polls. Another one of the uncertainties that hang over the markets this week. The bond and mortgage markets continue their positive biases. Technically the 10 yr yield is trading under its 20, 40 and 200 day averages, trading has been choppy however with traders keeping the rates in narrow ranges for the past few weeks. So far any selling has not seen any follow-through, nor have rallies seen much movement. The US bond markets are improving today on minor safe haven moves ahead of the toss-up election.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets back to full strength today after being down yesterday and most of Monday. After two days of no trading the open at 9:30 was orderly, no wild movements. The stock indexes trading in the futures markets prior to the 9:30 open were slightly better; the 10 yr note and MBSs slightly weaker. Yesterday stocks and bond markets were closed all day; Monday the bond market did trade until 12:00, the 10 yr note yield fell 3 bp frm Friday’s close to 1.72% and MBS prices were +6 bp. In early trade this morning the 10 yr started at 1.75%. Being employment week on Friday, normally today ADP would release its report on non-farm private jobs but it is delayed until tomorrow due to the storm, the present estimate is for an increase of 155K jobs, better than estimates at the beginning of the week. Wednesday is also the day the weekly MBA mortgage applications are reported, it too has been delayed. At 8:30 Q3 Employment cost inflation nudged down in the third quarter, posting at a quarterly 0.4% gain, following a 0.5% rise in Q2. However, the year-ago pace is warming at 2.0% versus 1.7% in the second quarter. While the US was focused on the severe storm, in Europe markets traded as usual; both Monday and Tuesday the key markets in the region rallied. Stronger earnings from BP and banks and improvement in Italy’s and Spain’s interest rate markets supported markets. Two shares advanced for every one that fell in the European Stoxx 600, bringing this month’s gain to 1.3%. The gauge is on course for five straight months of gains, the longest winning streak in six years. The yield on Italy’s 10-year bond fell four basis points to 4.96%, declining for a second day. Similar-maturity Spanish debt yields slipped six basis points to 5.62%. The DJIA opened +20 at 9:30, NASDAQ unchanged and the S&P +2. At 9:30 the 10 yr note at 1.74% +2 bp frm the short day on Monday and -1 bp frm last Friday’s close. The 30 yr MBS unchanged frm Monday and +6 bp frm Friday’s close. At 9:45 the October Chicago purchasing mgrs. index, expected at 51.0 frm 49.7 in Sept, as reported 49.9. The Sept index was the first below the pivot 50 since the recovery began, now October adds another month. Readings below 50 indicate contraction while above 50 expansion. There was no reaction to the report in the equity markets but the 10 yr note dropped 1 bp to 1.72%. Markets so far are very subdued after the closures; no real activity so far. The bond market still holds a slightly bullish bias as does the MBS market. Today isn’t a day to make much of the trading. There is month end demand for treasuries, the end of the month generally causes trades in equities that have more to do with end of month positioning than longer term thoughts. The employment report is due on Friday; so far there isn’t any announcement that it will be delayed until Monday. And of course the election next Tuesday is a factor that will likely keep markets in narrow ranges.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Market still closed this morning. Stock index futures traded until 9:15, the three key indexes were better but not much. According to the most recent reports the NY exchanges will open tomorrow however it isn’t yet clear at what level. If the trading floors can’t open the exchanges will trade electronically. The US bond market closed all day; if open the 10 yr note would likely be fractionally better based on trading in the German 10 yr bund. MBS markets also closed today. All European stock markets were better today on stronger than expected earnings. Economic confidence in the euro area fell to the lowest in more than three years in October. An index of executive and consumer sentiment dropped to 84.5 from 85.2 in September, the European Commission said. German unemployment rose twice as much as economists forecast in October and the jobless rate increased for the first time in three years. Crude oil and gold lower today; both were weaker yesterday. The 10 yr note and MBSs improved yesterday before they closed at 12:00. The 10 yr note yield declined 3 bp while 30 yr MBSs were up slightly tracking the 10 yr. Economic reports today; the August Case/Shiller home price index was +2.0%; the biggest year-to-year gain since July 2010, after rising 1.2% in the year to July, the group said today in New York. The median forecast of 25 economists was for a 1.9% gain. Oct consumer confidence index was moved to Thursday. Tomorrow the monthly ADP private jobs report has been moved to Thursday. The BLS Oct employment report is still scheduled for Friday, however it is still possible it will be delayed.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Sandy is upsetting the financial markets today, and possibly tomorrow. The NY stock exchanges are closed today with talk they may be down again tomorrow as the storm takes aim on Wall Street and NY. NY transit systems closed with concerns that the subways will flood. This morning the stock index futures traded until 9:15, now also closed. The Chicago markets still going but there are talks going on in the CME about closing also even though the storm won’t hit the city. The Securities Industry and Financial Markets Association suggested that trading end at noon New York time for the bond market. The recommendation applies to trading of government securities, mortgage- and asset-backed debt, over-the-counter investment grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers’ acceptances, and commercial paper. SIFMA will continue to monitor conditions to determine any additional recommendations for tomorrow, according to the statement. At 8:30 Sept personal income and spending were reported; income up 0.4% a little soft with estimates of +0.6%. Personal spending was up 0.8% much better than 0.4% expected and the best levels since last February. The saving rate dropped to 3.3%, the lowest since last November, from 3.7%. Wages and salaries increased 0.3% after rising 0.1% in August. Obviously not much reaction to the data; the index futures still operating until 9:15 but there is little motivation to react to anything. That said, the US 10 yr note rate is declining this morning, at 9:00 at 1.71% -5 bp and now well back below that 200 day average that once again held the selling. Stock indexes stopped trading at 9:15 this morning; the market itself is closed. The DJIA -60, NASDAQ -14.80, S&P -4.90. Europe’s equity markets did trade, the key markets all weaker today. The only markets that will trade all day; crude and other energy markets, metals, including gold and silver. With most markets closed we don’t look for much movement in any markets, oil is most vulnerable to rallying pending the damage from the storm. This week has a lot of data to work through with the monster on Friday, the October employment data. The storm is likely to impact trading until Wednesday based on present reports from the exchanges in NY. It will depend on the amount of flooding and the NY transportation system. The improvement in the bond market and mortgage market on Friday and this morning has taken the 10 yr away from that 200 day average that had been worrisome to traders. Looking much better technically today than in the last two weeks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The very fragile interest rate markets being hit early this morning. The 10 yr note started at 1.84% this morning, up 5 bp points and well over its 200 day average that so far has contained any rate increases. Although over the average, it has been there before but in a day or so managed to retreat below it. As we have note many times here, the bond and mortgage markets have been weak for the past few weeks. Today’s rate increase is additional confirmation that the bond markets are struggling to keep from increasing. Also as we have commented, we are not looking for interest rates to increase much, just that we don’t expect them to decline much either. The Fed’s QE programs should keep rates from increasing, but equally the Fed is pushing the string if expecting interest rates will decline to those lows seen in early September. Still a nervous call, with the fiscal cliff and the presidential election lurking, any decline in confidence would drop stocks and add support to the bond market. Europe still out there, if the current calm ends in disappointment safety moves to US treasuries would support rate markets. 8:30 data; weekly jobless claims were thought to have declined 13K, as reported claims were down 23K to 369K. Last week’s claims were revised from 388K to 392K. Claims have been volatile in the last three weeks as quarterly adjustments have rendered the data somewhat suspect in reality. The wider look shows employers are not firing much anymore but are also not hiring. Employers are unlikely to increase hiring until there is action on the tax cut expirations at the end of the year, and who the President will be and with the structure of Congress next year. Already it is very likely consumer taxes will increase with the expiration of the payroll tax cut that is going to end at the end of the year; neither political party will push to keep it alive. Sept durable goods orders were also out at 8:30. Forecasts were for orders to have increased 7.0%, as reported overall orders were up 9.9%; the overall is largely dismissed due to the volatility of aircraft orders. Ex-transportation orders durables were up 2.0%. August orders were down 13.1% the lowest since 2009. Orders for non-defense capital goods excluding aircraft dropped at a 23.5% annual rate in the third quarter after falling at a 5.9% pace in the three months ended June. Shipments of orders declined 0.3% in September and -1.2% in August; shipment data is used in calculating GDP, Q3 shipments were +5.1%; Q3 shipments -4.9%. The data adds to the increasing view that Q3 isn’t going to show much growth when the advance report is reported tomorrow morning. At 9:30 the DJIA opened up 69, NASDAQ +21, S&P +9. The 10 yr note at 1.84% +5 bp and 30 yr MBSs at 9:30 -23 bp. At 10:00 Sept pending home sales from NAR; pending sales are contracts signed but not yet closed. The estimate was for an increase of 2.4%; as reported sales were disappointing, up just 0.3%. Yr/yr +14.5%, the 17th month yr/yr ales have been better. The housing market data overall has been better than estimates, today’s report doesn’t change that. Lenders are slow to approve loans throwing up unusual exceptions thus slowing the turn time for pending sales. At 1:00 this afternoon Treasury will auction $29B of 7 yr notes; yesterday the 5 yr auction wasn’t well bid. There are many opinions now about the outlook for interest rates; some quite bullish, some not so much. We are in the not so much class. Why are we so concerned rates are not likely to decline? Fundamental data is mixed, is fluid and subject to change on the most recent data being reported. The stock market looks vulnerable but even with the recent days of heavy selling the bond and mortgage markets didn’t get any real traction. Looking at it technically where price and yield action is the current reality as it reflects traders’ and investors’ actions. Since the end of July when the 10 yr and mortgages it their historic lows there have been four attempts to rally the bond market; each time the rally failed at a higher rate than the previous rally. Unless there is a major shift in sentiment, the low mortgage rates seen in the past couple of months are likely to hold any rally in rates.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A little better start this morning for the US stock market after the strong declines on the indexes yesterday. Europe’s key markets traded better, at 8:30 the DJIA up 37 points; not much but at least this morning the bleeding has stopped. The 10 yr note still not moving much over the past six sessions was at 1.78% at 8:30, +2 bp in yield frm yesterday’s close with MBS prices -10 bp in price. The August FHFA house price index was expected to be up 0.4%, as reported the index increased 0.7%. Inventories are low motivating buyers to compete for the dwindling supply. Prices climbed 4.7% from a year earlier, according to the FHFA. The previously reported 0.2% increase in July was revised downward to a 0.1% gain. The data was released yesterday on the FHFA web site, a day early (the report was scheduled for 10:00 this morning). The FHFA’s index has climbed as improving employment, a tight inventory of available homes and record-low borrowing costs help strengthen a real estate recovery. A home value index by Zillow Inc. jumped 1.3% in the third quarter from the previous three months, the biggest gain since 2006, that was released yesterday. On the continuing debt problems in the EU, ECB Pres. Draghi spoke to Germany’s parliament today in a closed door session, defending the plan he has authored to buy sovereign debt from EU countries that are struggling to keep their economies and debt costs in check. German politicians worry that the ECB buying would lead to inflation; Draghi countered, “in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries,”…. “In this sense, OMT Outright Monetary Transactions) s are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it.” Germany continues to argue that ECB buying of sovereign debt violates the EU treaty. After three years of unresolved debt crisis markets are becoming more thick-skinned and don’t pay as much attention to the never-ending talks and plans that have not achieved much. At 9:30 the DJIA opened +40, NASDAQ +20, S&P +5. The 10 yr at 9:30 1.79% +3 bp; 30 yr MBS price MBA reported mortgage applications decreased 12.0% from one week earlier. The Refinance Index decreased 13% from the previous week to the lowest level since late August. The seasonally adjusted Purchase Index decreased 8% from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 7 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 81% of total applications from 82% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.63% from 3.57%, with points increasing to 0.45 from 0.44 (including the origination fee) for 80% loans. The 30-year fixed rate increased for three consecutive weeks to the highest level since late September. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.85% from 3.81%, with points remaining unchanged at 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.41% from 3.34%, with points decreasing to 0.61 from 0.82 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.96% from 2.87% with points decreasing to 0.36 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.72% from 2.59%, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80% loans. At 10:00 Sept new home sales were expected at +385K units, up 2.4% frm August; as reported sales increased 5.7% to 389K. August sales revised lower, from 373K to 368K. According to the data there is a 4.5 month supply of new homes. The better sales did not improve the stock indexes; earnings disappointments still dominant. At 1:00 this afternoon Treasury will sell $35B of 5 yr notes; yesterday’s 2 yr auction was met with strong demand, today should also be a strong auction. The elephant today is the policy statement release from the conclusion of the FOMC meeting. Last meeting the Fed announced it would buy $40B of MBSs each month until the world ends (no limit announced). Since then there has been very little improvement of mortgage interest rates. The general consensus is that there will be no change in the present policies; low shorty term rates until mid-2015 (a fictional tine frame in our opinion) and continued buying through Operation Twist and QE 3, buying MBSs. The Fed continues to push on the string as do most other central banks that are printing money so quickly printing presses are burning up. There will be a heavy price to pay down the line over the Fed’s balance sheet growing faster than a dandelion in May. Federal Reserve Chairman Ben S. Bernanke says he’ll stoke the economy until the job market recovers “substantially.” That promise may force him to keep buying bonds until the final months of his term ending in January 2014. Treasuries and mortgages remain in narrow ranges, no real changes in either; both still slightly negative from the technical perspective. Should be quiet this morning and into the 2:15 Fed policy statement.

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