Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and MBSs took hits yesterday after the FOMC policy statement and Bernanke’s press conference. This morning more minor selling early taking the 10 yr note up another basis point to 1.71%, at 9:00 the 30 yr FNMA 3.0 coupon was unchanged. Early trade in the stock indexes also unchanged from yesterday. 8:30 data; weekly jobless claims were expected to be at 375K up 5K frm 370K last week. Claims fell 29K to 343K and last week’s claims revised frm 370K to 372K. The 4 week average declined 27K to 381K. Nov retail sales expected +0.6% increased just 0.3% after declining 0.3% in Oct; ex auto and truck sales in line with estimates, unchanged. Nov PPI expected -0.5%, was down 0.8%, ex food and energy +0.1% about in line with forecasts. The three data points didn’t have any noticeable reaction in either stock indexes or the bond market. At 9:30 the DJIA opened +6, NASDAQ and S&P unchanged. The 10 yr 1.73% +2 bp while 30 yr MBSs unchanged from yesterday. Yesterday’s reaction to the FOMC policy statement is more indication that the Fed is less and less a factor in the markets. We have noted many times that the Fed’s monetary stimulus hasn’t had much impact on the economy and almost no impact on job creation, even with the Fed saying it would continue to buy treasuries and MBSs at the same amounts over the past six months didn’t impress traders in either stocks or bonds. Low interest rates are a good thing of course, but so far not much has been accomplished. It is the Cliff that overrides everything now. Opinions running about 50/50 on whether we go over or not. In the world of reality though markets are leaning heavily on the idea the Cliff will be avoided. Interest rates increasing slightly and the stock indexes holding well. The take away is that overall markets are expecting a deal will happen before the end of the year. Not set in cement and subject to change on a moment’s notice, but at least for today the sentiment leans toward a deal being achieved. Over the last four sessions the 10 yr note yield has increased 15 bp; 30 yr MBSs about 8 bp (as of 10:00 this morning). The move higher is more technical than fundamental at this point; the 10 failed for the sixth time to break solid resistance at 1.58%, now market longs are exiting pushing rates up a bit. Although we continue to believe, as we have said a number of times here, that the lows in treasury rates occurred last July, we don’t expect rates will increase substantially with the Fed sucking up so much of treasuries and MBSs. The next level of technical support for the 10 yr is at 1.76%, 3 bp higher from here where the 200 day average resides. The safe haven moves into US treasuries over concerns the EU would blow up with the debt crisis that seemed to have no end in sight, is being unwound; the impact is rates increasing a little as concerns over Greece have ebbed for the moment. Also hampering the bond market these days, most recent economic data has been better than economists were expecting; today’s fall in weekly claims is a good example. The economy is teetering but maybe not as vulnerable as many think. The settling down in Europe for the moment and better data on economic performance is currently adding to the weakness in the bond market. Mix in the technical failure to break hard resistance on the 10 yr, traders are currently exiting bullish positions.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The tight trading range in the bond and mortgage markets continues today, however this morning the 10 yr note yield increased to 1.64% +2 bp frm yesterday and MBS prices weaker after increasing yesterday. Since early November the interest rate markets have essentially been flat with no significant changes. There has been literally no change in mortgage rates for six weeks. Both stock investors and bond traders are willing to sit quietly until there is something out of Washington on the Cliff negotiations. No progress is being made; the president refuses to discuss spending cuts until the Republicans agree to increasing taxes on the so-called wealthy. Neither side wants to compromise, each believing the other will get the blame if no deal is reached and the economy goes over the Cliff with higher taxes for all. In his first comments since meeting with Boehner Dec. 9 at the White House, the president didn’t repeat frequent complaints about Republicans holding tax cuts for most Americans “hostage” because they oppose higher rates for wealthiest, and said he was ready to come to an agreement. Since Boehner complained Dec. 7 that Obama had wasted a week, statements from the speaker’s office have been milder, too. Some are now believing there is thaw in the stand-off; we have been here before only to back-slide into recalcitrant squabbling. Europe’s stock markets are better today on increased optimism in Germany; the Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 6.9 this month from minus 15.7 in November. Economists had forecast a gain to minus 11.5. The US equity market is following the movements in Europe’s markets for the last couple of months. This morning the US stock indexes are better. The Oct US trade deficit widened to its worst level in four years; the deficit at $42.2B was widely expected however. Declines in exports as global economies contracted contributed to the increase from -$40.0B in Sept. No reaction to the report, which is normal for the monthly report. At 9:30 the DJIA opened +31, NASDAQ +17, S&P +5. 10 yr note at 1.65% +3 bp. 30 yr MBS price -34 bp. At 10:00, Oct wholesale inventories, not a market mover, expected at +0.4%. Inventories as reported +0.6%. The NFIB (National Federation of Independent Business) index fell by 5.6 points to 87.5, one of the lowest readings on record which the report attributes to "an overwhelmingly negative response" among small businesses to the outcome of the presidential election. The report attributes the pessimism to the fiscal cliff, the "promise" of higher health-care costs and the "endless onslaught" of new regulations. Nine of 10 factors declined in the month with sales expectations and earnings trends especially weak. The one factor that did improve is employment. The FOMC meeting begins today, nothing until tomorrow though when the meeting ends with the policy statement. The Fed is highly likely to announce it will continue to buy treasuries when Operation Twist expires at the end of the month. Tomorrow after the meeting ends Bernanke is scheduled to hold a press conference at 2:15 (the statement will be released at 12:30). Between the FOMC meeting and the Cliff negotiations traders and investors just marking time with no significant movement in bonds or stocks over the last few weeks. With the 10 yr note and MBSs both in tight ranges, the technicals lose a little of their significance. This morning with the 10 yr note yield at 1.65% it is now above its 20 day average and testing its 40 day. The 30 yr FNMA coupon breaking below its 20 and 40 day averages. The relative strength indicator on the 10 yr note continues to hang around the 50 neutral area as we would expect with the non-trending market. Expect another quiet day; stocks better so far but may back off this afternoon. The bond and mortgage markets weaker but also may re-gain some of the price declines this afternoon. That said, we still don’t hold to the view that US interest rates will decline much frm present levels. There is a better chance of rates increasing a little than declining.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Last Friday’s better than expected Nov employment report pushed MBS prices lower and the 10 yr note yield up 3 bp. This morning the 10 yr is better by 5/32 at 1.61% -1 bp, 30 yr MBS price at 9:00 +6 bp frm Friday’s close. Stock indexes in pre-opening trade were unchanged at 9:00. MBS prices on Friday down 16 bp but were unchanged compared to 9:30 levels. No known news about the Cliff over the weekend; still a stand-off with the Administration taking an unwavering position. Republicans appear to be weakening on increased taxes for the wealthy, the President unwilling to consider spending cuts. The debate will go down to the wire, however as each day passes with apparent no progress the Cliff edges closer. Based on comments from numerous people CNBC interviews, the thought of going over the Cliff is about 50/50. Obama and Boehner met privately at the White House yesterday. Representatives for both men issued identical statements that provided no details and said that “the lines of communication remain open.” Europe’s stock markets weaker today. Italian Prime Minister Mario Monti said he will resign after losing support in Parliament sparking concern a leadership change will disrupt efforts to reduce debt. Greece extended a deadline to spend 10 billion euros ($13B) buying back sovereign debt until midday London time tomorrow from last Friday. The nation was near to reaching the target in a program that will unlock aid from the International Monetary Fund and the EU. French business confidence and industrial production unexpectedly declined, the economy is on the verge of recession. The US stock market opened weaker at 9:30; DJIA -9, NASDAQ -5, S&P -2. 10 yr note at 1.61% -1 bp; 30 yr MBSs +6 bp frm Friday’s close. There are no data points today. Most of the key data this week comes later on Thursday and Friday. In the meantime the FOMC meeting starts on Tuesday with the policy statement on Wednesday at the conclusion of the meeting. It is widely expected the Fed will announce it will continue to buy long term treasuries when Operation Twist expires at the end of the month. The Fed will also re-affirm its $40B a month of MBS buying. After the statement Bernanke will hold a press conference. This week Treasury will be back to borrowing to fund the continued debt; 3 yr note, 10 yr note and 30 yr bonds totaling $66. The Nov budget deficit is expected -$113.0B. The 10 yr note and 30 yr MBSs continue to hold very modest bullish biases on the technicals but we don’t believe there will be much change until the Cliff issue has some resolution. Failure will send interest rates lower and likely hit equity markets hard; an agreement will hurt rate markets while likely sending stock indexes into a strong rally. In the meantime we don’t expect much change in rates, as has been the case for three weeks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com It is the first Friday of the month; the day when chaos reigns. The Nov employment report, as most BLS reports, didn’t disappoint with volatility and numbers that missed estimates by a wide margin on unemployment and job creation. Estimates were “certain” non-farm job increase would be +86K, non-farm jobs increased 146K; private job increase was widely believed to have increased 90K, private jobs increased 147K. The Nov unemployment rate was also widely expected to have increased to 8.0% frm 7.9% in Oct, the unemployment rate fell to 7.7%, the lowest level since Dec 2008. Revisions to previous months had jobs revised lower by 47K. The poll of households that is used to calculate the jobless rate, showed that 369K people were not at work because of bad weather during the survey week. The average of the last 10 Novembers was 70,000. The Labor Department said it conducted the survey a week earlier than typical because of the Thanksgiving holiday. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6%, from the prior month’s 63.8%. Employment at private service-providers increased by 169,000 in November, today’s report showed. Payrolls at construction companies dropped by 20,000 workers. Average hourly earnings climbed to $23.63 from $23.59 in the prior month. The average work week for all workers held at 34.4 hours. Oct employment numbers were revised down 51K but it was all in government jobs. The increase in jobs and decline in the unemployment rates will be questioned through the day. Analysts and economists will diminish the report and imply the data for Dec will reflect sizeable lower revisions when the Dec report is released on Jan 4th. The rationale to somewhat dismiss the Nov data is based on Sandy, although the BLS said Sandy didn’t have much of an impact on the data. Prior to the data at 8:30 the 10 yr note yield was 1.57%, MBS prices +3 bp; US and Europe stock markets were weaker. The stronger jobs took Europe’s markets higher and turned US stock futures higher. At 9:30 the DJIA opened +41, NASDAQ +13, S&P +5; the 1`0 yr note yield after falling to 1.57% at 1.62 +3 bp, 30 yr MBS price at 9:30 -15 bp frm yesterday’s close. At 9:55 the U. of Michigan consumer sentiment index, expected at 83.0 frm 82.7, it is another wild surprise, the index fell to 74.5. The drop is hard to explain since the past two months the index has been around the 80 level. That kind of drop is very likely going to be revised higher when the final sentiment index for Nov is released on the 21st. There was no reaction to report, the employment report still be debated. According the U. of Michigan folks the decline in sentiment was concentrated on households with incomes over $75K, implying fears that taxes may go up next year. Later this afternoon at 3:00 pm, one of our favorite reports, consumer credit data (this one from Oct), forecasts are for an increase of $10.0B frm $11.4B. Not so much interested in overall credit as much as revolving credit (credit card use). Over the pond; in Germany their economy is slipping and possibly approaching recession as the rest of Europe suffers in prolonged recession with the debt crisis. The Bundesbank cut its 2013 projection to 0.4% from the 1.6% predicted in June and said the economy will grow 0.7% this year, down from its previous forecast of 1.0%. The economy will contract in the fourth quarter and stagnate in the first, the central bank said today. Yesterday the ECB left rates unchanged at 0.75%. While the 10 yr once again has failed at key technical resistance levels today, we don’t expect rates are going to increase much. Today’s employment report will likely be discounted a little as the day progresses. With Europe in recession and Germany headed that way; the US economy is muddling along but no recession on the horizon. The Fed will likely continue to buy treasuries and will continue its MBS purchases. The FOMC meeting is next Tuesday and Wednesday, we expect specifics from the meeting on how much the Fed will continue to purchase. The 10 yr note will find support at 1.65% and likely to fail at 1.57% through the rest of the year. A narrow range that in terms of mortgage rates is essentially flat. No reason to float now if closing are within the next two weeks; longer outlook is better so far. A deal on the Cliff before the end of the year may push interest rates higher if the stock market rallies on a deal.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries started better this morning and slightly broke the resistance level at 1.58% to 1.57%. Early activity in the MBS markets was unchanged at 9:00 this morning. Interest rates fell in Europe, the US markets followed. At 8:30 weekly jobless claims were expected to have declined to about 375K/380K, as reported claims were down 25K to 370K as the impact of Sandy has waned with claims now back to levels that existed prior to the storm. The four-week moving average, a less volatile measure than the weekly figures, rose to 408,000 last week from 405,750. The number of people continuing to receive jobless benefits dropped by 100,000 to 3.21 million in the week ended Nov. 24. There was little reaction in the markets to the data with tomorrow’s Nov employment report looming. Europe’s equity markets better today on thoughts the US cliff will be avoided; early trade this morning in the US markets were lower at 9:00. Tomorrow’s Nov. employment report is likely to be weaker than recent data. The present consensus estimates are for non-farm payrolls to increase just 86K, much lower than seen in the past few months, the unemployment rate at 8.0% frm 7.9%. Whatever the report reveals it will be distorted to some extent by Sandy. The uncertain outcome on the Cliff negotiations is also curtailing job creation. Small businesses are not willing to hire now with uncertainty over tax increases, health care costs and the inability to anticipate economic activity in 2013. Yesterday in an interview on CNBC Treasury Sec. Geithner said the Administration is fully prepared to go over the Cliff if it doesn’t get the tax increases on the wealthy. Meanwhile some Republicans appear to be weakening their opposition to tax increases; a rack in the dyke for the Administration. Current odds on avoiding the Cliff, based on interviews and comments is about 50/50. As the Cliff edge approaches the FOMC meeting is scheduled for next Tuesday and Wednesday. The Fed is on record that it will continue to keep rates low through 2014. One strong support for the bond and mortgage markets is the Fed’s continuing its purchases of MBSs ($40B a month) and outright buying of long dated treasuries. Operation Twist, selling short dated maturities while simultaneously buying long dated maturities, will run out at the end of the month. The present consensus is that the Fed will let the Twist expire because the Fed doesn’t have enough short-dated maturities to continue; the Fed will continue buying long term treasuries outright possibly increasing the amounts. The announcement of the Fed’s plan should come at the FOMC meeting next week. At 9:30 the DJIA opened down 4 points, NASDAQ -7, S&P -2. The 10 yr note at 9:30 1.57% -2 bp; 30 yr MBSs +12 bp. ECB’s Draghi saying today saying, “Weak activity is expected to continue into next year” at a press conference in Frankfurt after the central bank’s policy meeting. “The governing council continues to see downside risk for the euro area that relates to sovereign-debt risk.” The reaction to his comments sent the German 10 yr bund down 3 basis points in yield, to 1.31%, the lowest since last August. The rate decline is pushing US 10 yr note lower in yield this morning. Uncertainty about the Cliff resolution is keeping the bond market from increasing (rates). Tomorrow’s employment report is thought to be weak, adding to support today. The stock market is flat so far today; Apple stock falling on concerns sales of IPhones is slowing, that has dropped the NASDAQ and soured the entire market. The technicals remain bullish for the 10 yr and 30 yr MBSs but the strength is mediocre at best. Nevertheless at the start today rate markets have improved.

Mortgage Rates

Motgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very quiet this morning to start the day. No economic data to look at today but the countdown to the Nov employment data is on. In Europe and here the stock markets are generally flat. The 10 yr note at 9:00 up 2/32 at 1.62%, earlier the 10 was off 2/32. 30 yr MBSs at 9:00 unchanged. The Fiscal Cliff negotiations continue; yesterday Republicans offered their plan to increase revenue and cut spending, up to that time Pres. Obama was chiding Republicans to detail their plan. Now that it is out it met with no interest to the President because once again it didn’t call for tax increases on the wealthy and according to spokespeople for the Administration the plan was short on specifics. So another day clicks off the calendar with no progress; it is highly unlikely there will be any agreed plan to cut spending and increase revenues prior to late Dec. We don’t expect the economy will go over the Cliff but there is reason to think that there won’t be a deal and temporary extensions to Bush tax cuts will occur. At year’s end the Fed will end Operation Twist, selling short dated maturities while buying longer term Treasury debt to keep rates from increasing. The Twist will end because the Fed doesn’t have much more short dated treasuries in its portfolio, but the Fed will continue to purchase outright the same amount of longer maturities (about $45B a month). The Fed will also continue to buy $40B of MBSs each month. With the Fed buying long term debt rates are unlikely to increase much; however that is no reason to believe rates will not increase. If, when, the Cliff is avoided the likelihood of a strong rally in stocks could run the 10 yr note to as high as 2.00% and 30 yr mortgages up 25 bps in rates frm present levels. The premise for the potential of higher rates is totally predicated on the Cliff being avoided and continued progress with the EU’s debt crisis. In the near term the bond and mortgage markets are locked in narrow ranges; the 10 yr finds resistance when the yield falls to 1.60% levels, unable to break and hold lower levels. On the other side, the 10 yr finds support at 1.65% recently, a very narrow range that has held the 10 yr in check for almost two weeks. The 10 and 30 yr MBSs continue to hold slight bullish technical readings, under the 20 and 40 day averages on the 10 yr rate, and prices for 30 yr MBSs above the two key averages. Momentum oscillators still bullish but closely hugging the pivot at 50. Economists have cut their forecasts for the yield at the end of this year to the lowest since Bloomberg began surveying for the projection, on concern U.S. politicians will struggle to avert the fiscal cliff. The 10-year rate will probably be 1.64% by Dec. 31, less than the 1.75% rate that economists saw at the start of November, according to Bloomberg surveys of the predictions. At 9:30 the DJIA opened -2, NASDAQ -4, S&P -1; 10 yr note 1.62% unch and 30 yr MBSs unchanged from yesterday’s close. Gold is taking a he hit this morning, down over $25.00, crude oil down $1.00. By 9:45 this morning, after opening lower the DJIA was up 36 points. The 10 yr note and mortgage rates unchanged frm yesterday’s closes. The rest of the day is likely to be quiet unless there is a tape bomb dropped on the Cliff issue.

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 opened weaker this morning with US stock indexes following all of Europe’s key markets higher. Last Friday the 10 yr note moved to 1.60%, the key resistance, it held and this morning n early activity the 10 down 7/32 (21 bp) at 1.64%. 30 yr MBSs at 9:00 down 21 bp. This week is employment week and the two ISM indexes (manufacturing and services). Normally traders would direct most attention to the reports but this isn’t a normal situation; the overriding concern for markets is the fiscal Cliff that is likely to dominate through most of Dec. It is not likely the two parties will agree on anything until the final hour. Neither party can afford to disappoint their core bases and will debate the issue right to the end. Will the country go over the Cliff? It is all that is being talked about; there isn’t any true consensus about the outcome. This morning after the weekend news talk shows it appears the negotiations are going now where. It is early in the game though and no one should form any hard opinion on the outcome. Going over the Cliff has markets believing the economy will fall back into recession as tax hikes kick in. Given the present hard stance from the Administration that what has been laid out is not subject to debate, the atmosphere today is contentious. In the end we expect Congress and the Administration will agree to a temporary fix by extending the Bush tax cuts and the payroll tax cut into 2013 for a few months; we don’t see a grand compromise this month. Helping the equity markets early this morning, China’s manufacturing index was the highest in seven months. At 9:00 the 10 yr note at 1.65%, 30 yr MBS price -28 bp frm Friday’s close. At 9:30 the DJIA opened +47, NASDAQ +19, S&P +6; 10 yr note 1.65% +3 bp, 30 yr MBS prices -21 bp. Two reports out at 10:00; Nov ISM manufacturing index was expected at 51.2, down frm 51.7 in Oct. The index dropped to 49.5, the lowest level since July 2009 and under 50 indicating contraction. On the release the stock indexes gave up all the early gains. The 10 yr note yield improved by 1 bp to 1.64% and MBS prices improved frm the 9:30 levels. Oct construction spending, pushed into the background by the ISM index increased 1.4% much stronger than the 0.4% expected. The rate markets are well grounded at current levels; nothing has provided any reason to move rates higher or lower. Investors mostly not involved with the Cliff and Europe so uncertain. At these low levels of rates it will require a major shock to push interest rates lower. The wider belief within the capital markets is that long term US rates are more likely to increase than fall. We are hearing people like Mohammad El Arian saying 2.00% for the 10 yr note, but is does depend on how Washington deals with the Cliff crisis.