Mortgage Rates

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Yesterday the 10 yr note and MBSs rallied after the FOMC minutes, driven by the Fed still willing to keep buying treasuries and mortgages for the time being. The stock market got hit hard yesterday afternoon, also after the FOMC minutes were released. The DJIA saw its biggest loss in weeks as did the NASDAQ and S&P. Out of the box, the decline in stocks fueled talk that the correction that has been expected for the last few weeks may have begun yesterday. As noted in yesterday’s afternoon report, a few hours of selling doesn’t provide enough evidence that stock indexes are set to decline but it is a plus for the bond and mortgage markets, if it continues. This morning prior to 8:30 the DJIA was headed for a decline of about 50 points at the 9:30 open. Most all equity markets throughout the world were weaker today; all the key markets in Europe and Asia followed the US market lower. At 8:30 weekly jobless claims were reported up 20K to 362K after declining last week by 27K. The increase was expected but was a slightly more than estimates. 8:30 also brought Jan CPI; the overall index was expected +0.1%, as reported CPI was unchanged, however when the food and energy data is extracted CPI was up 0.3% against estimates of +0.2%. The two reports took some of the weakness out of stock index futures trading. At 9:00 the 10 yr traded at 1.98% -3 bp frm yesterday’s close that pushed the yield down 2 bp. 30 yr MBSs at 9:00 +9 bp frm yesterday’s 19 bp improvement. The DJIA -12 at 9:00 suggesting an open down 25. At 9:30 the DJIA opened -33, NASDAQ -13, S&P -7; 10 yr at 1.98% -3 bp and 30 yr MBSs +9 bp frm yesterday’s close and up 28 bp better than 9:30 yesterday) Three more reports at 10:00. The Feb Philadelphia Fed business index expected at +1.1 frm -5.8 in Jan shocked, declining to -12.5; a huge fall and increased selling in stock markets. Being a Feb number it is considered a fresh look. Jan existing home sales were expected to have declined 0.8%, sales increased 0.4% to 4.92 mil units. Sales of existing homes increased 9.0% yr/yr; inventory levels fell another 5.0% and are down 25% yr/yr. The average sales price $173,600.00. Jan leading economic indicators were expected up 0.3%, as reported up 0.2%. A number of markets seeing selling in the last couple of days; crude oil dropped $2.20 yesterday and is down another $2.00 so far this morning, gold lost $41.00 yesterday and other commodity markets also lost ground. Gold over the last few weeks has fallen over $100.00/oz. Global stock markets also slipping for the moment. Technically the 10 yr note yield has dropped to its first technical resistance at its 20 day average at 1.97% (we like the 20 day as an earlier heads up than longer averages). The bond and mortgage markets are looking better but still have a wider bearish trend. We want the 10 yr to break below 1.95% before we are willing to become bullish for the near term. We do not expect US interest rates to decline much more below 1.80% at the best; there are those looking for the 10 to break back to 1.50% levels, we just don’t see that at this time. The Fed is continuing to chatter about when and how it will begin to unwind its QEs; it will be a slow extraction, likely taking the easing’s back slowly. Presently the bond market is ignoring the comments frm Fed officials and focusing on the direction of equity markets. At some point when the bond market begins to focus on the end of the QEs, whenever it begins, interest rates will begin to increase. With continuing talk frm the fed abut an exit strategy interest rates are unlikely to fall as much as some are now touting.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Rate markets opened weaker this morning with the 10 yr note at 2.05% at 9:00; 30 yr MBSs down 6 bp, not much. At 8:30 Jan housing starts were down 8.5% against estimates of -4.2%, more than thought but most of the excess decline from estimates was due to a decline in multi-family starts. Single family starts were up 0.8% to 613K units; overall starts including multi-family units were 890K against 914K consensus prior to the release. Yr/yr starts were up 23.6% frm Jan 2012. Jan building permits were better than expected, +2.7% against +1.8% forecasts. Also at 8:30; Jan PPI was reported up 0.2%, markets were looking for +0.3%. The core (ex food and energy) up 0.2% as expected. Yr/yr the core index increased 1.8%, well below the Fed’s 2.0%-2.5% concern. Wholesale prices in the U.S. rose in January for the first time in four months, reflecting higher costs for food and pharmaceuticals; more than 75% of the increase in the gain in the PPI in January was attributable to food. We expect food prices will increase much more through the year as last year’s drought hits prices. Although the index is up for the first time in a number of months, there is little reason to be concerned about inflation increasing. The economy is too weak with growth just muddling along, while inflation fears are still there it is all about the longer term timeframe and based primarily on the continued Fed increases in its balance sheet and keeping overnight interest rates at close to zero. There shouldn’t be any direct reaction to the inflation data in markets. Tomorrow the CPI for Jan. will be released with consensus forecasts at +0.1% overall and +0.2% for the core rate. Earlier this morning (7:00 am) the weekly MBA mortgage applications report continued to show a slowing in applications. The overall composite index fell 1.7% after declining 6.4% the previous week. The purchase index was -2.0% after falling 10.0% the previous week; the refinance index -2.0% after falling 6.0% last week. Higher mortgage rates dragging on re-financing, the 30 yr interest rate for 80% loans, including points was 3.78%, the highest since August according to MBA. We also allow that January isn’t the best month in the year for home buying. At 9:30 the DJIA opened flat at -2, NASDAQ -2, S&P -1. The 10 yr note at 9:30 at 2.04% after trading at 2.05% earlier; 2.05% is the highest yield on the 10 yr note since last April. 30 yr MBS price at 9:30 -12 bp. Prices jumped at 10:00, the 30 yr MBSs +12 bp frm 9:30 as the stock market slipped. Later this afternoon at 2:00 the FOMC minutes frm the Jan 31st meeting will be released. After the Dec minutes caused a lot of volatility the minutes will get a lot of attention from traders. In the meantime the stock and bond markets will likely sit quietly. Keep alert to how markets trade after 2:00 this afternoon. It is very unlikely the Fed is anywhere close to exiting its QEs, in the Dec meeting there were discussions about an exit plan when the time comes. No matter who is forecasting interest rates in the near term, or whether estimates are bullish or bearish, interest rates continue to increase albeit slowly. Floating in this market has been somewhat costly. We continue to remind that it isn’t a good idea to fight the tape and technicals that are all bearish. Overall there is a slight consensus that interest rates won’t increase much more, we subscribe to that in general, however as long as rates continue to creep higher any expected correction isn’t likely to be much when compared to where rates were trading a month ago when the 1`0 yr was trading at 1.83% and MBS prices were 156 bp higher frm where they are this morning.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened slightly better this morning with early trade in stock indexes also a little better. The 10 yr note is comfortable sitting close to 2.00% with the bullish outlook for stocks still holding well. Europe’s stock markets traded better today for the first time in four days on rising investor confidence in Germany. An index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 48.2 from 31.5 in January. That’s the highest since April 2010. The better outlook is feeding into US equity markets this morning. The S&P 500 index has been up for the last seven weeks, the longest winning run since Jan 2011 with the narrowest swings on the index since the Depression suggesting investor confidence is increasing. At 9:00 this morning the 10 yr sat at 2.00% unchanged from Friday, 30 yr MBSs +5 bp; stock indexes higher. At 9:30 the DJIA opened +9, NASDAQ +6, S&P +2; 10 yr 2.00% unch, 30 yr MBSs +6 bp. Housing data is dominate this week; at 10:00 a few minutes ago the first of the data, the NAHB housing market index, expected unchanged at 48 fell to 46; the first decline in about a year, Jan revised to 47 frm 48. Jan housing starts and permits and Jan existing home sales also out this week (see calendar). While housing data is important, the FOMC minutes frm the 1/31 meeting will be released tomorrow. The minutes frm the Dec meeting shook markets a little when it was revealed there were discussions in the meeting on how the Fed may unwind its QE. That it was being talked about so soon bothered investors for a few days before Fed officials renewed the pledge to keep buying MBSs and treasuries. Will the Jan meeting have any surprises? Technically the bond market remains bearish but the strength of the bearishness is lessening somewhat. The 14 day relative strength index on the 10 yr is still negative but less so than two weeks ago. The same is true with MBS markets. To actually turn our outlook around the 10 yr has to decline to under 1.95%, and that isn’t that far away. If interest rate do turn around we don’t expect any major moves lower; the 10 possibly down to 1.85% at the best, MBS rates falling about 10 basis points in rate. There isn’t anything in the fundamentals that suggest rates could decline further----except----the coming $1.2 trillion in spending cuts that kick in in two weeks unless Congress and the President can agree on a plan to avoid it. Given the way markets are doing these days investors and traders are acting as if there will be a deal to avoid the sequester.

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 10 yr note traded down 1 bp at 1.99% frm yesterday’s close. At 8:30 better news on the Empire State manufacturing index; the index surprisingly jumped to +10 frm -7.8 in Jan with forecasts of -0.2 expected. There was not much movement in either the stock indexes or treasuries but the better read did take something away frm the rate markets. The index is the highest since May 2012; gains in orders, sales and employment during the month show manufacturing is starting to recover from a slowdown in the second half of 2012 after companies brought inventories more in line with demand. US stock indexes came off their lows but still were negative at 9:00; all European stocks rallied on the US report. Two more reports at 9:15; Jan industrial production expected to have increased 0.3% and factory usage was expected at 78.9% frm 78.8% in Dec. Production reported down 0.1%, less than thought; factory usage at 79.1% with Dec revised from 78.8% to 79.3%. The reaction to the mixed data did add a little to stock indexes and pushed the 10 yr note back above 2.00% to 2.01%. Industrial production lower but nothing significant after the biggest back-to-back gains in the last 30 years; revised data for Dec and Nov showed the largest gains since Feb. 1984. The manufacturing report, part of the industrial production data, and accounts for 12% of the economy declined 0.4$ after Dec was up 1.1% and Nov +1.7%. Gold has lost a lot of its luster recently and is down dramatically this morning as gold bugs are throwing in the towel on gold forecasts of $2,000+ per ounce that once was a “given” are now history. You know it’s over when spam mail floods your e-mail touting gold as a good buy. Pump and dump. At 9:00 the 10 yr unchanged at 2.00%, 30 yr MBSs lower, down 9 bp (GNMAs -34). At 9:30 the DJIA opened +8, NASDAQ +4, S&P +1; 10 yr note 2.01% +1 bp, 30 yr MBS price -9 bp on conventionals while FHA price down 31 bp. At 9:55 the U. of Michigan consumer sentiment index was expected at 75.0 frm 73.8; the index rocketed to 76.3 the highest since last Oct and Nov when the index was over 80. Another better data point this morning adding to the strength in the stock market. No much but the 10 yr increased to 2.02% on the report and MBS prices fell 6 more bp frm the 9:30 levels. Interest rates are well contained in a 10 bp range on the 10 yr, mortgage interest rates in an even narrower 5 bp range on rates; there is no urgency to sell bonds and equally no reason so far to buy the note. As long as the stock indexes hold interest rates have little to suggest rates will decline. There is still a lot of belief that the stock market will enter into a correction, so far that has not occurred. It is now reasonable to assume the key S&P 500 index will continue to increase and achieve a new all-time high over 1565. Although rates are technically bearish and stock indexes technically bullish, both markets are locked into little tight ranges. The 1st of March is closing in quickly with the automatic spending cuts due to engage; Dems in the Senate want a 10 month extension to the sequester, offering some spending cuts but want tax increases also. Republicans in the House are resisting any tax increases. Markets though appear to be taking it all in stride so far; stock indexes holding and no run to safe treasuries as the days fall off.

Mortgage Rates

Mortgagae Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early this morning the stock indexes were trading lower in the futures markets. The 10 yr note yield up 2 bp frm yesterday’s close, 30 yr MBSs at 8:00 AM +2 bp. At 8:30 weekly jobless claims were better than expected. Claims were down 27K to 341K, expectations were for claims to have declined about 6K. Claims for Connecticut and Illinois were estimated according to the Labor Dept. Last week’s claims were revised a little, from 366K to 368K. The four-week moving average, a less volatile measure than the weekly figures, rose to 352,500 last week from 351,000. The number of people continuing to receive jobless benefits declined 130,000 to 3.11 million in the week ended Feb. 2, the lowest level since July 2008. Although claims were better there was no noticeable reaction to the data in either the stock indexes or in the mortgage markets. At 9:00 the 10 yr note yield, after increasing 2 bp earlier had declined to unchanged from yesterday, but the 10 yr today is the new 10 yr auctioned yesterday at 2.046%; at 9:00 down to 2.02%. Mortgage prices at 9:00 +12 bp, +5 bp frm 9:30 yesterday. At 9:30 the DJIA opened -55, NASDAQ -13, S&P -6; 10 yr note 2.03%, down frm 2.046% at yesterday’s auction. 30 yr MBSs better by 12 bp. (see below for 10:00 levels in stock indexes---improving already) The only scheduled thing left today is the $16B 30 yr bond auction. So far this morning traded as the yield slightly lower than yesterday’s close, in pre-auction trading the 30 is yielding 3.20%, 3 bp lower than yesterday’s close. Yesterday the 10 yr auction was weak compared with last month’s auction and the averages over the last 12 months. Europe’s stock markets weaker today, the US markets following lower. Data from Europe not encouraging; the euro-area economy shrank 0.6% in the final three months of 2012, the worst performance in almost four years, as output slumped in its three biggest economies. The bigger decline in claims this morning didn’t help the stock market. Is this the beginning of the long awaited correction; stocks ignoring bullish data? Maybe, maybe not; too early to make that call. Yesterday the DJIA declined 36 points, this morning opening down another . Yesterday wasn’t a wide sell-off in equity markets, the NASDAQ up 10 points and the S&P, the broadest index up 1 point. Although the stock market is weaker this morning there is no movement into treasuries; the 10 yr and mortgage markets are essentially unchanged, AND still hold a bearish bias. Yesterday the 10 traded at its highest yield since last April 10th. Don’t try and beat the market. The 10 yr and mortgage markets still hold strong bearish technicals. Even the decline in Europe on lower growth data and the soft stock market this morning haven’t budged the 10; MBSs a little better but lenders continue to withhold gains. There is too much talk about a correction stocks that will rally the bond market. That will occur if there is continuous selling in equity markets but already this morning the key indexes are cutting their losses at the 9:30 open.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Interest rates started higher (yield) this morning; the 10 yr note at 2.02% early and 30 yr MBSs -21 bp frm yesterday’s close at 9:00. Stock indexes prior to the 9:30 open were trading slightly better. Europe’s stock markets trading higher today. At 9:30 the DJIA opened +4, NASDAQ +9, S&P +2; 10 yr note 2.02% +5 bp frm yesterday’s close and 30 yr MBSs -24 bp frm yesterday’s close. Last night’s State of the Union address didn’t provide any surprises, about what had been expected. The Pres. wants to increase the minimum wage from $7.25 to $9.00, boost the economy will huge increases in infrastructure spending to repair thousands of bridges, increases in taxes, reducing the deficit, increase education with changes in high school curriculum, getting jobs back to America; generally the same agenda he has pushed during his tenure. On the coming sequester that is set to cut $1.2 trillion in automatic spending cuts on March 1st, the Pres. railed that it was unfair and should be abandoned. That he was the one that agreed on it in August 2011 appears to have escaped him, pushing the can down the road, sometimes the can has to stop rolling. He also pledged to pursue a trade agreement with the 27 nation Euro zone that could increase export sales, discussions have been taking place on a trade pact, with added emphasis it might actually get done. One thing that has bi-partisan support is immigration reform, both parties seem to agree it should be done but like most all issues these day each group has a different plan. Overall, based on initial market responses, markets saw little new in his speech. Jan retail sales at 8:30; overall sales were up 0.1%, ex autos +0.2% and ex autos and gasoline +0.2%. Sales in Dec were +0.5%, unrevised. The slowdown likely due to the increases in payroll taxes that kicked in Jan 1st. Also at 8:30 Jan import prices, increased 0.6%, the first time in three months, led by more expensive fuel and building materials. Dec import prices originally reported -0.15 were revised to -0.5%. Yr/yr import prices declined 1.3%. At 10:00 Dec business inventories, expected up 0.3%; as released inventories increased 0.1%; Nov inventories originally reported +0.3% were revised to +0.2%. This afternoon Treasury will auction $24B of 10 yr notes, it will be a new 10 yr note. The demand will be critical; rates have increased, if demand isn’t strong it will add to the underlying bearishness in the bond and mortgage markets. Yesterday’s 3 yr note went OK, about the norm for a three year note. This morning the bellwether 10 yr note traded at 2.03%, the previous interday high back on Jan 30th was 2.04%. The note is vulnerable, if it fails to hold and closes above 2.05% expect increased selling with the yield increasing to 2.15%. Still depends on stock market trading, the key indexes appear to be relentlessly moving to new all-time highs; the market remains technically overdue for a correction, as long as it increases interest rates will also increase. The coming sequester cuts in spending don’t appear to be bothering stock markets, believing the automatic cuts won’t happen as Republicans will capitulate. The rate markets are going to head higher over time, the 30 yr bull market in interest rates is over. That said, we still have the Fed QE that will continue and keep rates from increasing as much as without the $85B of monthly buying of treasuries and mortgages. Our advice remains unchanged, on any rallies lock in rates; don’t expect rates will fall much.