Mortgage Rates




Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



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Wednesday, October 12, 2011


Interest rates continue to increase this morning; the 10 yr note yield at 2.22% at 9:00 and in our opinion is headed to support at 2.30%. Technically the rate markets have broken down and are now bearish; a double bottom on the 10 yield chart, breaking above its 20 and 40 day averages, and the momentum oscillators now bearish. The MBS market also bearish but holding a little better than treasuries as safety trades are lifted with increased optimism that Europe will actually come up with a plan that will keep Greece from defaulting for the moment. Also putting pressure on US interest rates, the equity markets are continuing to rally on Europe's improved outlook.

Little Slovakia rejected the vote on the plan to increase funding for the European Financial Stability Facility. The no vote however isn't indicative that the country won't go along, it was a negative vote based on internal politics amid a dispute over the future of Prime Minister Iveta Radicova. Global stock and currency markets rebounded from earlier declines on optimism the EFSF changes will be approved by Parliament in the country of 5.4 million people. Slovak approval of enhanced powers of the EFSF, the temporary bailout fund, is crucial for adopting the key element in the strategy to prevent contagion from the debt crisis that has spread from Greece to other countries in the region. Markets believe in the end the country will vote along with the other 16 countries.

At 9:30 the DJIA opened higher, +67, the 10 yr note -17/32 at 2.22% and mortgage prices -8/32 (.25 bp).

Earlier this morning the weekly MBA mortgage applications for last week were slightly better, but not much. Hard to turn the ship around in the minds of consumers and most lenders that the interest rate markets may have hit their lows for quite sometime. The applications should have been better as rates continue to climb. The composite index +1.3%; the purchase index up 1.1% in the October 7 week. The gain in this index is a positive indication for underlying home sales. The refinance index was up 1.3%.Interest rates, at 4.25% for conforming 30-year loans under $417,500 and at 4.59% for jumbo loans over $417,500. Purchase demand is also getting a boost from continued discounting in home prices, indicated in this report by a fall in the average loan size to $210,863 in September vs $212,736 in August.

At 1:00 this afternoon Treasury will auction $21B of 10 yr notes, with 10 yr rate up 33 bp since last Wednesday the auction should see good demand.

At 2:00 the minutes from the Sept 21st FOMC meeting will be released; should get attention as in the meeting the FOMC decided to launch Operation Twist in an effort to keep long term rates low. So far ever since the plan that the Fed would sell short term treasuries while simultaneously buying longer dated notes and bonds and buy MBSs to keep mortgage rates and treasury rates from increasing has failed. On the 21st of Sept the 10 yr yield stood at 1.86%, it fell to 1.67% the next day then ran up to 2.04%, then back again to 1.72%; now at 2.22% and headed to 2.30%. Mortgage rates up 35 basis points in the same time frame.

Although the rate markets are bearish now, we expect some improvement simply because rates have increased for six sessions with no pause. Use any improvement now to get deals done. As has been the case these days, any bounce is dependent on how equity markets trade. Traders are feasting on the trade, buy bonds on weakness in equities, sell them when the key indexes are rallying. This morning the stock market is better but looks soft so far and is subject to some declines, the same rationale why we look for a bounce in mortgage prices.