Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Typically after 4:00 pm each day there isn’t much movement in MBSs or treasuries; yesterday that wasn’t the case. After we did the 4:30 PM report mortgage prices continued to decline, MBS prices and treasury prices continued to fall adding 20 basis points to the decline in MBS prices (on the day -44 bp), the 10 yr note yield at 4:00 1.64%, at the close 1.65%. This morning MBS prices are better as are treasury prices on weak stock markets in Europe and early weakness in US index futures. At 8:30 August personal income and spending were reported. Consumers didn’t spend in August; spending barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum. Household purchases rose 0.5%, matching the median estimate of economists, the biggest gain since February, according to data from the Commerce Department. Looks good on the headline but 0.4% of the increase was due to increased prices for food and gasoline; adjusted for the higher prices real spending increased just 0.1%. Incomes rose 0.1% against estimates of 0.2% expected in August, matching the previous month’s gain after the Commerce Department revised down those figures. July income originally reported up 0.3% was revised lower to +0.1%. The saving rate dropped to 3.7%, the lowest since April, from 4.1% in July, the lowest since last April. The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA. Spain will reveal the size of the hole in its banking system with the publication of stress test results later today (12:00 eastern), the credibility of that estimate risks being undermined by a deteriorating economic outlook. The test on 14 banking groups is a precursor to the formation of a so-called bad bank to which troubled lenders will transfer soured real estate to bolster their balance sheets. The test is to assess the damage to banks over the property crash is a condition of Spain’s 100 billion-euro ($129B) banking bailout agreed in July. Spain must present convincing estimates of banks’ capital needs and realistic valuations of toxic real estate assets to spur investment and economic growth. Spanish 10-year bonds yields climbed above 6.0% before the results of stress tests on the country’s banks; 6.0% is considered pivotal on Spain’s 10 yr debt. Over 6.00% and investors get worried, under it seems to increase enthusiasm that Spain can avoid defaults. At 9:30 the DJIA opened -63, NASDAQ -13, S&P -6. 10 yr note at 9:30 1.62% -3 b; 30 yr MBS price +14 bp frm yesterday’s close. At 9:45 the Sept Chicago purchasing mgrs. index was expected at 52.8 frm 53.0 in August; as reported the index the index plunged to 49.7, the lowest reading on the index since Sept 2009. The DJIA dropped 40 points on the news to over -100 on the day. MBS prices got a small boost on the reaction to the very weak report from the Mid-West reading on manufacturing, nothing for the 10 yr note. Index readings under 50 indicate contraction, the report this morning adds belief that manufacturing isn’t going to add much to economic growth. Next week markets will get the national ISM manufacturing index and the national services sector reading. At 9:55 the Sept final U. of Michigan consumer sentiment index was expected at 79.0 frm 79.2; as reported the index hit at 78.3. While 78.3 looks bad compared to the mid-month reading at 79.2, it is substantially better than at the end of August which was 74.3. The index I subject to volatility, that it was up on a month to month basis it is a better report but still weaker than what had been expected. The reaction in the stock market dropped the DJIA t0 -111. There was no improvement in MBSs or treasuries on the report. The bond and mortgage markets continue to consolidate recent improvements; today not much enthusiasm in either market so far after selling yesterday. The longer outlook continues to look good; however we remain somewhat skeptical that the interest rate market don’t have much more declines ahead. We believe rates will fall more but won’t be much more as rates are so low that there is little likelihood they can go a lot lower.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A flood of data at 8:30 this morning has markets scratching heads. Weekly jobless claims were a lot better than thought, -26K to 359K with estimates at 380K. August durable goods were expected down 5.1% and with transportation excluded -0.3%; as released orders fell 13.2% and ex transportation -1.6%. Orders for non-defense capital equipment excluding airplanes rose 1.1% after decreases of 5.2% in July and 2.7% in June. Q2 GDP final revision was expected unchanged from the preliminary last month at +1.7%, as reported Q2 GDP was revised lower to +1.3%. Claims were better but durables and Q2 GDP weaker suggesting Q3 won’t be as good as many were thinking. Prior to the 8:30 data the DJIA futures was up 60; by 9:00 the index added another 10 points to +70. The 10 yr note rate at 9:00 at 1.64% +3 bp with 30 yr MBSs -9 bp. Spain’s bond market improved a little today with the 10 yr yield declining 3 bp after a jump the last couple of days as protests against austerity roiled markets. Italian securities rose as borrowing costs fell at a 6.65 billion-euro ($8.6 billion) auction of five- and 10-year debt. German 10-year bund yields were little changed after falling to the lowest level in three weeks. Spain is set to announce its budget defying anti-austerity protesters and dissent from regional leaders as he struggles to convince investors he can contain the crisis and avoid asking for a full bailout. The bond market is higher in rates this morning for the first time in 8 sessions, the longest sustained rally since Dec 2008. Bonds have been supported as investors returned to some safety moves with Greek and Spanish citizens protested and clashed with police over austerity cuts that are driving unemployment to 23% in Spain. Spain and Italy are trying to avoid asking the ECB for a bailout, but the headwinds are severe. Money is leaving Spanish banks in buckets as investors continue to exit, adding to the potential that a bailout frm the ECB is unavoidable. At 9:30 the DJIA opened +46, NASDAQ +11, S&P +5. The 10 yr treasury note at 1.65% +4 bp. 30 yr MBS price -29 bp. MBS prices have increased for 8 days an due for a pullback. At 10:00 August pending home sales (contracts signed but not yet closed) by the NAR. Pending sales were expected up 1.0%; as reported sales declined 2.3% yr/yr though up 10.7%. The NAR saying the decline is a result of small inventories especially in lower cost homes. The initial reaction to the report improved the mortgage market slightly and drove the stock indexes off their early strong levels. At 1:00 this afternoon Treasury will finish the week’s auctions with $29B of 7 yr notes; we expect the auction to see decent demand. The decline in mortgage prices this morning doesn’t signify any change in the overall direction in prices. It was very likely to occur as we mentioned on Tuesday, the bond and mortgage markets were due for a pullback. All that was needed was a reason, this morning Europe looks more relaxed for the day and US stock indexes were also due for a rebound. Even the soft durable goods data this morning didn’t drop the stock indexes but like the bond market we expect the indexes to continue to decline with a real potential of a major decline in the next month. Interest rates should continue to fall with our target for the yr note at 1.56% (1.63% now).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US and German interest rates continued to decline today and stock markets lower in Europe and early trading this morning had the stock index futures weak after a strong sell-off yesterday. There are various reasons the US stock market saw selling yesterday; anticipated earnings in Q3 are expected to be lower, Europe’s relentless inability to deal with its debt crisis and the realization that the Fed’s QE3 announced two weeks ago won’t add many new jobs---if any. That the Fed continues to buy treasuries and MBSs is expected to add jobs has been the most mis-understood belief in years is finally finding believers as the evidence is irrefutable. Yesterday Philadelphia Fed Pres. Plosser and Richmond Fed Pres. Lacker waded in with comments that easing from the Fed isn’t going to accomplish what Bernanke is doing. Lower interest rates have little impact on economic improvement especially when the financial cliff of tax increases and an end to the SS payroll tax cuts loom heavily and trump anything the Fed can do. In Europe yesterday, riots and protests in Spain increased moves into safe German debt and US agency debt. With the Fed’s recent decision to buy $40B a month of MBSs with no announced cap on the amount has made the MBS markets a safe place with higher returns than US treasury rates; MBSs appear to be the place now for investors to find safety. In Spain, the prime minister has struggled to persuade people to accept the deepest austerity measures on record. Unions and protest groups are demanding a referendum on cuts announced by the government. Spain is still dragging its feet in asking the ECB for help, trying to carve out a better deal. Spain’s interest rate climbed above 6.00%, approaching the levels seen before European Central Bank President Mario Draghi offered to buy struggling nations’ debt. Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.” Don’t forget Greece in this never-ending debt crisis. Schools, hospitals, ferries and government services shut down in the first walkout since February. Shops will close from 3 p.m. today to let staff take part in demonstrations. Police fired tear gas near the Greek Parliament after protesters threw fire-bombs as thousands of people joined a strike opposing wage cuts and austerity that Prime Minister Samaras said are vital to keep the euro. Demonstrators streamed into the central square in Athens, opposite the Parliament House, shouting slogans such as “struggle, clash, overturn: history gets written by those who disobey.” The renewed tensions in the EU that had been softened recently on comments from ECB’s Draghi that the bank is ready to buy sovereign debt of Spain Italy and other debt strapped counties, and approval of the plan by Germany’s parliament to do so has ended for the time being. The region is back again as a dominate factor for global equity and bond markets. Europe’s stock markets declining, the US stock market teetering on the possibility of a major sell-off and another run to historic low interest rates; all being driven by the debt crisis in the EU. After weak trading early in US stock indexes at 9:30 the DJIA opened better; the DJIA up 15, NASDAQ -4 and the S&P-1. The 10 yr note at 9:30 at 1.65% -2 bp with 30 yr MBS price +12 bp. The weekly MBA mortgage applications were better last week as mortgage rates fell. The purchase index rose 1.0% in the September 21 week with the refinance index up 3.0%. Mortgage bankers are busier with refinancing than they are for purchases with refinancing making up 81.2% of total applications which is the highest percentage since early August. Down nine basis points in the week, the average 30-year fixed mortgage rate for conforming loans ($417,500 or under) is 3.63% which is a new low for the Mortgage Bankers' survey. August new home sales at 10:00 were expected to have increased 2.1% to 380K units; July sales were up 3.6% at a 372K annualized rate. As reported sales were generally unchanged at 373K units, July at 372K, -0.3%. At 1:00 Treasury will auction $35B of 5 yr notes, yesterday’s 2 yr note auction was OK but not especially strong. Today’s 5 yr should see better demand. Technically the 10 yr note has finally cracked its key averages; now the yield is under the 200, 20 and 40 day averages with the relative strength index moving into bullish territory. The MBS markets, if viewed on their own are extremely over-bought the 10 yr isn’t and negates the over-bought technicals that characterize MBS trading. As long as the 10 yr isn’t running over-bought readings we can ignore the current MBS technical reads; the 10 is still the driver for directional moves in the MBS markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 9:00 this morning the 10 yr note yield fell to 1.69% -2 bp and at its 40 day average. Mortgage prices opened unchanged from yesterday; the stock indexes were better pointing to a stronger opening at 9:30. In Europe’s continuing soap opera; Greece is facing a financing gap that won’t be solved by budget measures being discussed, International Monetary Fund Managing Director Christine Lagarde said yesterday. Nobel Prize-winning economist Joseph Stiglitz said euro members will have to share debts and speed the implementation of a banking union to prevent a situation in which “the whole system falls apart.” In Germany Merkel can’t move without problems from her own political party, providing more money from Germany to feed Greece. Spain continues to hold off asking for the ECB to buy its debt, the country has been able to sell its debt in the markets at decent rates so leaders are reluctant to do what in the end has to be done. In the meantime ECB Pres. Draghi’s plan to buy the debt of cash- strapped nations boosted Spanish bond values and cheapened German debt. Demand for German debt, perceived to be among the safest securities, is being sustained as Spain weighs a sovereign bailout to supplement a 100-billion euro ($129B) bank rescue package and as Europe’s economy falls toward recession. The German 10 yr bund is at 1.52% compared with the US 10 yr note at 1.70% this morning; in late July before ECB’s Draghi said the bank would do whatever it takes to save the euro the 10 yr German 10 yr yielded 1.127%, the US 10 yr was at 1.41%. Both yields have increased since then on optimism the EU will dodge the bullet. Although interest rates did increase on the Draghi announcement the rate markets have improved from the high level seen two weeks ago when the US 10 yr hit 1.86%. The July Case/Shiller home price index at 9:00 was better than expected; the 20 city price index increased 1.2% frm July 2011, the biggest 12 month increase since August 2010. Shiller saying on CNBC that “housing is back”. He said inventories still low but Shiller is saying the data suggest prices may be increasing. Home prices adjusted for seasonal variations increased 0.4% in July from the prior month. Unadjusted prices climbed 1.6% from the previous month as all 20 cities showed gains for a third consecutive month. At 9:30 the DJIA opened +30, NASDAQ +10, S&P +4. The 10 yr note after dropping to 1.69% earlier was back to 1.71% and unable to crack its 40 day average at 1.69%; 30 yr mortgage price up 7 bp frm yesterday’s close. At 10:00 the Sept consumer confidence index was expected at 63.2 frm 60.6 in August, earlier this week the estimate was for 63.0 but analysts revised their forecasts a little higher. As reported the confidence index jumped to 70.3 frm 61.3 in August, the best level since last February. Prior to the release the DJIA had fallen back to +15, the response to the strong confidence jumped the index back to +51 and took the 10 yr note up to 1.73% +2 bp on the day. A little heads up; while the longer outlook for mortgage rates remains quite positive, the current condition I the MBS market is becoming overbought and may be ready for a correction. If there is a pullback it won’t likely change the overall optimism and would present buying opportunities for investors. The 10 yr note isn’t as overbought as MBSs but it isn’t showing much strong support either. With the Fed printing money as fast as it can it isn’t likely interest rates will increase much IF selling were to occur.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Getting off the a good start in the bond and mortgage markets this morning with US and Europe stock markets weaker. 9:00 had the 10 yr note at 1.72% -3 bp and testing its key 20 day average; 30 yr MBS prices improving again +15 bp and making another new record high on prices. The Fed’s decision to buy $40B a month of MBSs with no limit has sparked a run to MBSs by investors looking for better returns than can be achieved in treasury markets. There are no economic reports today but the rest of the week has a number of critical reports. Treasury will auction $99B of notes beginning tomorrow with $35B of 2 yr notes, Wed $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent Treasury auctions have seen decent bidding but not as strong as a few months ago when it looked like the EU nations were about to split apart. The ECB stepped up with its plan to by sovereign debt from struggling economies, that took away a lot of the need for safety in US and German bunds. Much of the weakness this morning in Europe’s stock markets and key US indexes is due to frustration within the EU with Spain’s dragging its feet with deciding whether it will ask for assistance from the ECB. The country needs a full scale rescue but won’t ask for it, looking for better terms? Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue. The Spanish prime minister has displayed reluctance to seek more help after Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister said last week Spain will consider a bailout if conditions are acceptable. As long as any country in the EU balks, or doesn’t in in step with Germany there will be a need for safety; today a good example but nothing as severe as six months ago when it looked like the whole region would come undone. U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, government figures show. German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Ifo’s measure of executives’ expectations declined to 93.2, the lowest since May 2009, from 94.2. A gauge of the current situation fell to 110.3 from 111.1. The debt issues in Spain, Italy and a couple of other of the 17 member EU are in recession talking Germany down with them, not to mention the global economies including the US. At 9:30 the DJIA opened -50, NASDAQ -27, S&P -8; 10 yr note at 1.73% -2 bp while 30 yr FNMAs were up 9 bp frm Friday’s close. At 10:00 the 10 yr note is testing its 20 day average at 1.72%; if the 10 can break the 20 and 40 day average (1.69%) we would expect the note to decline to at least 1.60%. This week’s economic data will be important to the technical outlook as well as the US stock indexes. A lot of chatter out there that the stock market is overdue for what some see as a major correction after the improvements over the past few weeks. In some sense the more talk of a correction coming, the less likelihood it will happen; when the majority talk more bullish is when we worry most. The Oct 30 yr FNMA coupon’s relative strength is in overbought levels suggesting some consolidation or pullback; wait for it though, the MBS market is strong.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: The bond and mortgage markets opened generally unchanged this morning with no driving news and no US data points today. MBSs had another good day yesterday but treasuries were flat; the spread between 30 yr mortgage rates and the 10 yr note is narrowing since the Fed announced its plan to purchase $40B a month of mortgage-backed securities. US treasury market this morning is slightly weaker, the 10 yr note up 1 bp to 1.78%. German 10 yr bund also weaker in price on reports that said euro-region policy makers will unveil a financial bailout program for Spain as early as next week. The German 10-year yield climbed one basis point, or 0.01 percentage point, to 1.58%. Spanish Economy Minister is in talks with European Commission authorities to facilitate a new rescue program that will be presented on Sept. 27, the Financial Times reported, citing unidentified officials involved in the discussions. If you blinked you missed Congress in session; the politicos are about to head home again after two heavy lifting weeks of constant arguing and not accomplishing much. That really should not be a surprise however, this Congress is one of the worst in history and is an embarrassment to citizens. Just 13% of Americans approve of the job Congress is doing, according to a Gallup Poll released last Friday. That’s the lowest congressional approval rating Gallup has recorded so late in an election year. The only notable piece of legislation Congress plans to send to the President from its two-week September session is a stopgap funding measure to keep the government operating from the Oct. 1 start of the fiscal year through March 27, 2013. Lawmakers plan to finish their work within the next few days. At 9:30 the DJIA opened +41, NASDAQ +18, S&P +6; 10 yr note +2 bp to 1.79%. Mortgage prices generally unchanged from yesterday’s close. The day should be quiet with no news of consequence, not much to report. On CNBC this morning most talk is about Apple’s new phone, not much to fill the airwaves this morning. . Technically the 10 yr note is still slightly bearish, while the MBS markets hold a bullish bias on the Fed’s decision to buy MBSs.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. US treasuries early this morning were better, the 10 yr note yield down 4 bp to 1.74%. The decline fueled by disappointing Spanish 3 yr note auction pushing investors to seek safety in German bunds and US treasuries. German 10-year government bonds advanced for a fourth day, the longest run of gains this month. The German 10 yr declined 3 bp today to 1.59%, our 10 yr down 4 bp to 1.74% at 9:00 am. The yield on Spain’s 10-year bond increased nine basis points to 5.78%. The rate on similar-maturity Italian securities climbed 10 basis points to 5.02%. Weekly jobless claims at 8:30 were expected to have declined 9 to 10K, they were down 3K to 382K; last week’s claims were revised from 382K to 385K. the 4 wk average a smoother way to look at claims was up 2K to 375,750. Claims have been in a narrow range recently, not increasing but not declining, suggesting employers are not firing nor are they hiring. Until Congress and the Administration deal with expiration of the tax cuts and SS payroll cuts businesses are likely to sit tight; hard to plan when these issues hang over the economy. A Labor Department spokesman said there was nothing unusual in the state data last week. States and territories that reported an increase in claims as a result of Tropical Storm Isaac two weeks ago, including Louisiana and Puerto Rico, didn’t indicate the weather had any influence last week, the spokesman said as the data was released to the press. Dallas Fed President Fisher, one that is opposed to the Fed’s easing moves, speaking out yesterday. He said the central bank’s third round of bond purchases will probably fail to create jobs while risking higher inflation. “I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said yesterday on Bloomberg Radio’s “The Hays Advantage”. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.” Congress’s inaction on fiscal policy and excessive government regulation are holding back businesses from spending on hiring and investment, Fisher said in a Bloomberg Television interview. The Fed’s stimulus efforts, or so-called quantitative easing, won’t work because the central bank can’t address those obstacles to growth, he said. “I question the efficacy of these large-scale asset purchases,” Fisher said. “What we are doing is not having the impact on employment.” We comp[lately agree with Fisher that while the $40B a month purchases of MBSs is nice for mortgage markets but won’t create jobs over the economy. Euro-area services and manufacturing output fell to a 39-month low in September as European leaders struggled to reverse the single-currency bloc’s slide into recession. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area dropped to 45.9 from 46.3 in August, London-based Markit Economics said today in an initial estimate. A reading below 50 indicates contraction. Crude oil is trading at six week lows this morning after U.S. stockpiles climbed the most since March; Chinese manufacturing shrank and Japanese exports fell, signaling fuel demand may be slowing among the world’s biggest crude users. At 9:30 the DJIA opened -52, NASDAQ -17, S&P -7. The 10 yr note 1.73% -5 bp; 30 yr MBSs +20 bp. At 10:00 the Sept Philly Fed business index was expected at -4.0 frm -7.1 in August. As released the index was better at -1.9. August leading economic indicators was down 0.1% as expected. Interest rate lower today on Spain’s weak auction. The 10 yr has been able to hold at its 200 day average, testing it five times over the last month on any selling pressure. MBS markets continue to hold bullish trends on the Fed easing announced a week ago. This morning the 10 is testing its 20 day average at 1.72%, a break below it will add additional bullish bias. Today’s move is also fueled by weak stock markets in Europe and the US; although the DJIA did improve on the Philly Fed release at 10:00.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. At 8:30 August housing starts and permits were reported; starts were expected up about 2.5%, as reported starts increased 2.3%. Building permits were expected to have declined 1.5%, as reported down 1.0%. Generally close to forecasts and there was no noticeable reaction to the data. Construction of single-family houses climbed 5.5% to a 535,000 rate, the fastest since April 2010. Permits for the building of one-family homes increased 0.2% to a 512,000 annual pace, the highest since March 2010. Work on apartments and other multifamily homes dropped 4.9% to an annual rate of 215,000. New home sales are still 50% below the average rate over the past 40 years. Almost 11 million families are “underwater” -- saddled with more debt than their homes are worth after five years of declining home prices. The stock indexes were trading better before the report and didn’t move with the DJIA futures up 20 points. The 10 yr note at 1.79%, down 2 bp remained unchanged while MBS prices were up 6 bp increased to +15 bp. Yesterday started strong in the mortgage markets but by the end of the day MBS prices while still holding some gains had fallen back; down 11 bp frm the level at 9:30 yesterday. There wasn’t much movement in either stocks, bonds or mortgage markets yesterday as traders still trying to get a handle on last week’s FOMC announcement that surprised markets with the intensity the Fed is going to apply to purchasing MBSs. Spain’s Deputy Prime Minister out today saying the nation will consider seeking external aid if the conditions were acceptable. Spanish bonds are headed for their biggest monthly gain in a year after the European Central Bank said it will act to reduce borrowing costs if countries request assistance. Spain is scheduled to sell as much as 4.5 billion euros of debt due in October 2015 and January 2022 tomorrow. Mortgage applications for home purchases declined in the September 14 week, down 4.0% following an 8.0% increase during the holiday shortened prior week. Applications for refinancing rose 1.0%. Mortgage rates moved mostly lower in the week including for 30-year fixed mortgages with conforming balances (under $417,500) which averaged 3.72% (with points) for a three basis point decline in the week and a new record low in Mortgage Bankers Association data. At 9:30 the DJIA opened +17, NASDAQ -2, S&P +1. The 10 yr note at 9:30 1.76% -5 bp; MBS 30 yr price +43 bp, 15 yr fixed +10 bp. At 10:00 August existing home sales out; forecasts called for an increase of 2.2%. Sales +7.8%, a nice improvement and a 2 yr high. Sales up 11% yr/yr; there are 2.47 million units for sale down 18% yr/yr. The median sales price at $187,400.00, +9.5% yr/yr. According to NAR there is a 6.1 month supply. Homes under $100K declined. Based on the data the housing sector continues its slow improvement, any gains are welcome but there is still a long way to go. Japan joins in on the increased asset buying stimulus following the US; the Bank of Japan increased its asset-buying fund by 10 trillion yen ($126B), following new debt-purchase plans by the U.S. Federal Reserve and the European Central Bank this month. Last Friday the bellwether 10 yr note yield increased and closed above its 200 day average; but it didn’t hold and the rate fell back below it on Monday. A positive sign that the 200 day average is holding any increase in rates; the average was tested on 8/16, 8/20 and 8/21 but held and rates declined on treasuries and mortgage markets. Momentum oscillators however are still slightly negative but all are improving. Japan’s easing today, the ECB debt purchase plan, and the Fed’s commitment to purchase $40B of MBSs for an extended period have strengthened the technicals in the MBS and treasury markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened better this morning on weak stock markets in Europe and early trade in the US futures markets. The 10 yr note is now back below its key pivotal 200 day average on the yield (the 200 day at 1.82%), at 9:00 the 10 at 1.79%. Europe’s key stock markets all lower today taking the US indexes down ahead of the 9:30 open. At 8:30 the current-account deficit in the U.S. narrowed more than forecast in the second quarter, helped by a pickup in exports and a bigger income surplus. The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 12% to $117.4B from $133.6B in Q1. The median forecast of economists in a Bloomberg survey called for a $125B deficit. Chicago Fed President Charles Evans said this morning that the Fed is ready to keep on easing as long as it has to, to keep the economy from sliding further. Bernanke last week said the Fed will purchase $40B of MBSs each month with no mention of an eventual amount. His decision sent MBS prices spiraling higher last Thursday, but Friday and yesterday about half of the Thursday gains had been eroded as selling set in Friday and a little more yesterday. “Given the slow and fragile recovery, the large resource gaps that still exist, and the large risks we face, it remains clear that we needed a more resilient economy,” Evans said.. The Fed’s actions last week “provided a more accommodative monetary policy that can help us achieve such resilience.” The Fed is on a buying binge that has inflated its balance sheet to over $3B and likely will increase to $4B as long as the Fed has to try to prop up an economy that is being dragged down by Europe and China’s economic slowdown. Germany’s equivalent to the U. of Michigan consumer sentiment index is still weak. Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010. Economic growth in Germany will slow to +0.8% for 2012 from +3% last year, the Kiel-based Institute for the World Economy said last week. At 9:30 the DJIA opened -23, NASDAQ -6, S&P -3. The 10 yr note rate at 1.79% -5 bp 30 yr MBSs +30 bp, FHAs +35 bp, 15s +18 bp Germany’s 10-year bund yield dropped four basis points to 1.64%; our 10 yr followed suit so far. Spain’s 10-year notes fell seven basis points to 5.91%, after climbing as high as 6.06%. According the most recent data, demand for U.S. financial assets rose more than forecast in July as investors sought shelter from the debt crisis in Europe. Net buying of long-term equities, notes and bonds totaled $67 billion during the month, compared with net purchases of $9.3 billion in June, the Treasury Department said today. Since July however, the risk on flight to US treasuries has ebbed with ECB plans to buy debt from sovereign countries; although like everything else from the region, leaders still can’t get their act together. At 10:00; the Sept NAHB housing market index was expected at 38 frm 37 in August. the index increased to 40 on increased builder optimism. The report indicated what we all know, that credit conditions are restraining the housing sector. Banks continue to lend but won’t lessen their very restrictive requirements and are stuck on 80% LTVs to achieve the lower rates. The interest rate markets looking slightly better this morning but still most of our technical data remains negative for the 10 yr note. We would need a close on the 10 yr treasury below 1.70% to improve the near term outlook. MBSs continue to hold bullish bias however. To drive mortgage rates lower the 10 yr will have to improve; there is a limit how low rates of mortgages can go unless the treasury markets decline in yields. Market volatility is still with us and can erupt and anytime in these uncertain conditions. The fiscal cliff is out there and won’t see any decisions until after the November elections. It isn’t likely that Congress and the Administration will let the tax cuts expire or the SS payment increase to take effect. That said, traders will not want to press the issue in either equity or fixed income markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. At 8:30 the NY Fed Empire State general economic index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August. The median forecast called for minus 2. New orders decreased to minus 14 this month, the lowest since November 2010, from minus 5.5 the prior month. A measure of shipments dropped to 2.8 from 4.1. The employment measure fell to 4.3 this month, the weakest this year, from 16.5 in August. The index of prices paid rose to 19.2 from 16.5 while prices received increased to 5.3 from 2.4. The weak report didn’t do too much damage to the stock market in pre-market trading; the key indexes were a little lower but didn’t slip on the report. Treasuries, after heavy selling last week are slightly better early today; MBS prices at 9:00 up about 15 bp frm Friday’s close. Markets should calm a little after last week’s FOMC statement that sent MBS markets screaming higher in price and mortgage rates lower. The Fed’s open-ended commitment to buy $40B a month of mortgage backed securities lit a fire under investors to continue selling treasuries and launch heavy buying of MBSs. The 10 yr note yield felt the pain, the yield on the 10 yr increased 20 basis points last week. 30 yr FNMA 3.0 coupon increased 73 basis points frm the close on Wednesday, the day before the FOMC statement. Last week’s decision from the FOMC to buy MBSs to keep interest rates low and help the housing industry, which Bernanke said was the weakest link in the economic recovery, wasn’t itself a surprise to markets as many analysts and traders were expecting the Fed would buy MBSs. What was somewhat shocking was the FOMC statement that said the Fed would buy $40B now and will continue to do it with no announced limit to the amount. Bernanke followed in the footsteps of ECB Pres. Mario Draghi; on July 26th Draghi threw down the gauntlet with his statement that the ECB would do “whatever it takes” to save the EU. At 9:30 the DJIA opened -23, NASDAQ -6, S&P -3; the 10 yr treasury note at 1.86% -1 bp. MBS prices +12 bp on 30s and -5 bp on 15s. EU finance ministers failed to agree on a timetable for a more unified banking system; sending Spain’s interest rates higher today while German 10 yr bunds saw some buying as any news that questions the EU efforts to support debt countries that isn’t positive puts investors back to safety; leaving the yield four basis points lower at 1.67%. The US 10 yr note at 1.86% Nothing left on the schedule today; the rest of the watch stock indexes; weaker will add some support to the bond and mortgage markets. After last Thursday and Friday some normalcy is welcome. The Treasury market is technically bearish; although last week the mortgage market lead treasuries after the FOMC statement, treasuries still direct interest rates.

Mortgage Rates

Mortgage Rates: Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Yesterday’s Fed decision to focus its new easing move on MBSs rocked markets. Mortgage prices exploded, FNMA 30 yr 3.0 coupon up 134 bp, GNMA 3.0 up 146 bp, 15 yr price +75 bp. The Fed will buy $40B a month of MBSs until the economy improves, the most open-ended Fed initiative we have seen from the Fed. No maximum or time limit; Bernanke took a page from ECB Pres. Draghi, saying he will do what it takes to get the economy growing. The Fed appears to want to stay away from treasuries since the Fed has bought $360B of treasuries with maturities over 7 yrs, that is about 65% of the Treasury issuance this year. Many were concerned more treasury buying might disrupt the Treasury market. Based on estimates, the Fed’s easing and its re-investing principal payments back into MBS purchases may absorb up to 80% of the MBS market. With the announcement yesterday estimates are the Fed will be buying almost half of MBS issuance each month; recent data indicates issuance of MBSs is running at about $140B a month. While MBS markets rallied hard yesterday, the treasury markets were generally unchanged. This morning the 10 yr note, normally the driver for MBS markets, is increasing in yield at 1.85% early this morning up 10 bp from yesterday’s close and above its 200 day average for the rate (1.82%). On more than one occasion we have used the old traders adage; ‘never say never and never say always’; we have noted a multitude of times that the 10 yr treasury note is the driver for mortgage markets. Well, at least for the moment that isn’t working. Mortgage markets after the FOMC decision yesterday are seeing yields fall while the 10 yr note yield is increasing. How long that will continue is difficult to predict; at some level the yield spread between mortgages and treasuries will narrow to a point that investors will lose their current appetite for MBSs in favor of treasuries when risk assessments make treasuries leaders again. August retail sales were +0.9% right on target, when auto and truck sales are extracted sales were up 0.8%, when auto and truck sales and gasoline prices are extracted sales were up just 0.1%. August consumer price index was up 0.6% about in line with forecasts; ex food and energy +0.1%. Yr/yr CPI +1.7%; ex food and energy +1.9%. The 0.6 increase in the consumer-price index was the biggest since June 2009 expected at 79.2% fell to 78.2% frm 79.2% in July. At 9:30 the DJIA opened +38, NASDAQ +11, S&P +4. The 10 yr note 1.81% +8 bp. 30 yr MBS -5 bp; FHA 30s +14 bp. The U. of Michigan consumer sentiment index for mid-month was much better than expectations at 79.2, up frm 74.3 and higher than 73.3 expected. It is one of the highest sentiment readings since 2007 (May was the highest at 79.30. It is a volatile index though and in two weeks we will get it again at the end of the month. At 10:00 July business inventories, expected +0.4%, increased 0.8%; another strong data point. Treading on virgin ground. The Fed’s decision to target the mortgage markets with such heavy buying, and Bernanke’s statement that the Fed would keep it up until there is improvement in the economy, buying $40B a month in MBSs is unprecedented in its scope and intensity. We have to go with it, however it isn’t clear how low mortgage rates can go which depends on investor appetite for the product.

Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Thursday, September 13, 2012 A little better start this morning with MBS prices at 9:00 up 31 bp on FNMA 30s, the 10 yr note yield at 1.73% -3 bp. Weekly jobless claims were expected up 5K to 369K as reported claims increased 15K to 382K, last week’s claims were revived up 2K frm 365K to 367K. Claims the highest in two months. Tropical Storm Isaac resulted in about 9,000 applications for benefits, the Labor Dept. said. The four-week moving average, a less volatile measure than the weekly figures, climbed to 375,000 last week, the highest in almost two months, from 371,750. The number of people continuing to receive jobless benefits dropped by 49,000 in the week ended Sept. 1 to 3.28 million. Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs. The producer price index climbed 1.7% after an increase of 0.3% in July, the Labor Department reported. The core rate, ex food and energy was in line with estimates, up 0.2%. Compared with a year ago, companies paid 2.0% more for goods, after a 0.5% gain in the 12 months ended in July. The core index increased 2.5% in the year ended in August, matching the rise a month earlier. Fuel costs surged 6.4% from the prior month after five straight declines. Gasoline prices advanced 13.6%, while home heating oil costs increased 10.8%, the most since October 2010. The producer price index is one of several inflation measures monitored by the Fed. The consumer price index, due tomorrow, is projected to increase 0.6%. At 9:30 the DJIA opened +2, NASDAQ and S&P +1. The 10 yr note at 1.72% -4 bp frm yesterday’s close with MBS prices +20 bp. It is all about what the FOMC policy statement will say at 12:30 this afternoon and Bernanke’s press conference at 2:15. Markets generally believe some kind of easing will be announced by the Fed; interesting though this morning, there is talk that the Fed easing won’t be enough or do much good for the economy; something we have been saying for weeks. Buying treasuries and/or MBSs won’t increase employment or get businesses to spend. The calendar continues to click off days until the election and what Congress will do with the Bush tax cuts and the SS cut that will end at the end of the year. What the Fed does is secondary to how those issues will be resolved. Don’t expect businesses and consumers to increase spending until Congress and the Administration deal with them. If at the end of the day today the 10 yr note yield is higher than yesterday’s close (1.76%) we will want to lock all loans regardless of the date to closing. The bond market has to hold here; most of the safety trades into the bond market over the last two years have been closed out; any additional increase in rates will be a result of a stronger economic outlook. Technically, the 10 yr note has been bearish now for over a week, mostly due to the risk off on so-called progress in Europe. The ECB will buy bonds from Spain and Italy, however those economies are declining; Greece is just a waiting game before it has to exit the EU.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened weaker this morning on the German high court ruling that Germany can participate in the European Stability Mechanism. German opposition on the basis that participation was unconstitutional was defeated. The German constitutional court rejected bids to block ratification of a permanent euro-area rescue fund, while ruling the country’s 190 billion-euro ($245B) contribution can’t be increased without legislative approval. The court said a cap should be set on potential German liabilities, unless parliament backs the allocation of extra funds. “We are an important step closer to our goal of stabilizing the euro,” German Economy Minister and Vice Chancellor Philipp Roesler told reporters in Berlin after the ruling today. “It has always been the goal of this government” to establish a “clear limit and to include parliament in all important decisions.” The bailout fund would work in tandem with the European Central Bank in buying bonds to lower yields for states such as Spain and Italy. The FOMC meeting starts today, the conclusion tomorrow. Based on various surveys of economists and Wall Street firms markets are expecting some form of easing according to almost two-thirds of economists in a Bloomberg survey. CNBC survey indicates that many don’t expect a flat dollar amount if the Fed does ease as it has with the past easing moves and Operation Twist. The idea that the Fed would ease by announcing at each FOMC meeting the amounts of buying of treasuries and mortgage-backed securities from one FOMC meeting to the next instead of a lump sum over a defined time frame. A novel idea, we will know tomorrow at 12:30 when the policy statement will be released. Treasury rates continue to increase; the 10 yr note rate has now increased 18 basis points since last Tuesday. For over two years huge sums have flooded US treasury markets on safety fears over the crisis in the EU debt mess, those moves into safe havens are being closed out sending interest rates higher now that those fears have moderated. Given the outlook for another easing move by the Fed, the amounts of money that went into treasuries must have been sizeable. In the face of more QE the bond treasury market should be improving instead of rising rates. Mortgage rates also have increased but not much compared to the 10 yr note; investors moving to MBSs as housing markets stabilize and the idea the Fed, when it eases, will focus more buying of MBSs than in previous easing’s. Early this morning the MBA mortgage applications increased 11.1% from one week earlier. This week’s results include the customary upward adjustment for the Labor Day holiday. The adjusted Refinance Index increased 12% from the previous week. The seasonally adjusted Purchase Index increased 8% from one week earlier, it was 7% higher than the same week one year ago. The holiday adjusted numbers may overstate the level of refinance applications because some lenders who rely primarily on the internet/consumer direct channel for originations saw little if any decline in applications for Labor Day as compared with the drops for lenders relying on retail offices, perhaps because borrowers had additional time over the Labor Day weekend to complete online refinance applications according to the MBA. The refinance share of mortgage activity increased to 80% of total applications from 79% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.5 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.75% from 3.78%, with points increasing to 0.44 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.00% from 4.05%, with points decreasing to 0.30 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.50% from 3.54%, with points decreasing to 0.43 from 0.44 (including the origination fee) for 80% loans. This 30-year FHA contract rate marks a new low for the survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.07% from 3.10%, with points increasing to 0.38 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.63% from 2.64%, with points increasing to 0.47 from 0.35 (including the origination fee) for 80% loans. This 5/1 ARM contract rate is the lowest recorded in the survey. At 8:30 August import prices were reported up 0.7% frm July and yr/yr -2.2%. Export prices increased 0.9%. No reaction to the data. At 9:30 the DJIA opened +40, NASDAQ +12, S&P +5; the 10 yr note at 1.75% +5 bp with MBS prices down 17 bp frm yesterday’s close on 30 yr FNMA wile FHA price up 11 bp. Lenders adjusting to increased GSE fees, decreasing prices. At 10:00 July wholesale inventories were expected to be up 0.3%, inventories increased 0.7% indicating consumers still not meeting inventory builds. At 1:00 Treasury will auction $21B of 10 yr notes re-opening the 10 yr note issued in August. Yesterday’s 3 yr auction saw the strongest dollar demand in many years. Treasury technicals are increasingly more bearish, now well above the 10 yr 20 day and 40 day averages on the 10 yr note with all of our momentum oscillators increasingly more negative. MBSs also bearish but not quite as severe as treasuries as investors continue to exit those safety traded over the EU as the fear factor has lessened.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Still marking time in the bond and mortgage markets; not much change yesterday and this morning the bond and mortgage markets opened about unchanged. US stock indexes fell a little yesterday but this morning prior to the open the indexes traded better---but not much. The only scheduled data today; the July trade deficit was -$42.0B, slightly less than $44.0B expected and a little less than -$42.9B in June. No reaction to the report. This afternoon Treasury auction $32B of 3 yr notes, it should be OK but recent Treasury auctions haven’t seen the strong demand that was the case earlier this year as the EU debt crisis is presently in limbo with decreasing concern of defaults. Yesterday afternoon July consumer credit was expected to be up $10.0B; overall credit fell $3.3B while revolving credit (credit cards) fell by $4.8B, the second month in a row the use of credit cards have declined (June revolving credit fell $3.7B). July was a very strong month for retail sales but consumers apparently were paying cash and keeping their credit cards in their wallet. The early indications for August retail sales are positive which hints at a rebound for the revolving credit component in next month's consumer credit report, assuming that is that consumers returned to old habits. For all the optimistic talk that US consumers are increasingly more positive, the two months decline in the use of credit cards suggests consumers are still weary of the future. This morning the NFIB small business optimism index rose 1.7 points in August to 92.9 against estimates of 91.5. The index has averaged 90.0 during the recovery. Improvement in the economic outlook leads the August report followed by a rise in sales expectations and in employment plans. Capital spending plans are also up as are current job openings. On the downside are the assessment of credit conditions and of earnings trends was soft. Germany’s top constitutional court rejected a last-minute bid to delay a case over the European Stability Mechanism, the court said its ruling would be announced at 10:00 tomorrow. The ESM treaty has not been ratified, if the German high court rejects the treaty the ESM will likely fail. The judges will rule tomorrow on whether Germany may ratify the ESM, the final hurdle for the plan to rescue indebted euro-area member states. The consensus in Germany is that the court will allow the ratification, allowing the 500 billion-euro ($640 billion) European Stability Mechanism to be implemented. At 9:30 the DJIA opened +23, NASDAQ and S&P +1. The 10 yr note at 1.68% and 30 yr MBS price down 12 bp. Thursday the FOMC meeting will conclude with its policy statement; the markets remain convinced that the Fed will ease again at the meeting. Still some doubters but overall the Fed is expected to ease with increased purchases of MBSs and treasuries, maybe just an extension of Operation Twist. About the only positive that an easing will do is to keep interest rates from increasing; it will not have any significant impact on the economy. In the meantime markets should trade in a narrow range. We will have to wait to see how markets react on Thursday afternoon; given the majority of traders and investors believe the Fed will act, the bond market is not improving as we would expect.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgages opened flat this morning. Friday saw a nice rally on the weak August employment data, not in treasuries but MBSs. Treasury market rallied in the morning, dropping the 10 yr rate to 1.59% frm 1.73% prior to the 8:30 employment report, but could not hold the improvement and ended unchanged on the day at 1.68%. Mortgages fell from their 9:30 levels but did hold most of the improvement on employment. MBSs a little stronger than treasuries now with the belief that a Fed easing move will focus on increasing purchases of mortgage-backed securities more than treasuries. The August employment report was weak, even though the headline saw a decline of 0.2% to 8.1% on unemployment. The decline in the rate of unemployment was due to more potential workers becoming discouraged and dropping out of even looking for a job. Non-farm jobs increased just 96K while private jobs up just 103K, both well below estimates from economists. The report has increased optimism the Fed will ease on Thursday at the conclusion of the 2 day FOMC meeting that starts Wednesday. Treasury will auction $66B of 3 yr, 10 yr and 30 yr issues Tuesday through Thursday. Economic data doesn’t hit until Thursday and Friday this week. Today the only scheduled report is at 3:00 with July consumer credit, while markets don’t pay a lot of attention to the report, we do. It is one of my favorite reports each month, measuring how consumers are actually spending and is more important than consumer sentiment or consumer confidence that are reported each month. Putting your money where your mouth is. The revolving credit component was not good in June, declining $3.7B; revolving credit is credit cards and measures underlying consumer confidence in their outlook, more use of cards increasing debt suggests consumers feel better about the outlook----or it could mean consumers are so strapped they are using cards to stay afloat. That isn’t the case now though; any increase in revolving credit should be seen as optimism. The decline in revolving in June does suggest the today’s revolving credit may be up. The stock and bond markets trading in a range, even with talk of an easing move from the Fed there is no sustained improvement in either stock indexes or the bond market. It is important to keep close this week; have the interest rate markets already discounted the easing in present price and yields? Over the weekend Greece’s political parties were unable to agree on spending cuts; stock futures declined today as Greek Prime Minister Antonis Samaras meets officials from the nation’s creditors after failing to secure agreement from coalition partners on spending cuts. The treasury market unchanged. Germany’s Federal Constitutional Court is due to rule on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs; the ruling is expected on Wednesday.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. At 8:45 this morning the 10 yr yield was up 6 bp frm yesterday’s close at 1.65%; 30 yr MBS price down 23 bp frm yesterday’s close. 8:15 the ADP August private jobs were expected up 149K, as reported ADP said job growth was 201K. At 8:30 weekly jobless claims were expected down 4K to 370K, as reported claims fell to 365K -12K frm revised claims last week from 374K to 377K. The ADP data; the 201,000 increase in employment, the biggest gain in five months. Estimates in the Bloomberg survey ranged from 90,000 to 170,000. Since April 2010, ADP’s initial estimate has either overstated or understated the Labor Department’s initial reading on private payrolls by 69,000 on average. Goods-producing industries, which include manufacturers and construction companies, increased payrolls by 16,000, today’s figures showed. Employment in construction rose 10,000, while factories added 3,000 jobs. Service providers added 185,000 workers, up from 156,000 a month earlier. Companies employing more than 499 workers added 16,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 86,000 and small companies increased payrolls by 99,000, according to ADP. Weekly jobless claims are the lowest in 4 weeks but still in a range that has kept claims between 360K and 375K. The claims data shouldn’t be taken as a huge turn in employment given the recent range. A Labor Department spokesman said there was nothing unusual in the data last week, and that there was no indication Hurricane Isaac had any effect on filings. The level of claims in Louisiana has been fairly stable, he said, and only one state - Colorado - was estimated last week. While claims are better than thought, and initial comments have been optimistic; the best we can say is that firings and lay-offs appear to have leveled off over the last month. The number of people continuing to receive jobless benefits fell by 6,000 in the week ended Aug. 25 to 3.32 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 11,800 to 2.27 million in the week ended Aug. 18. Overall, a baby step but very welcome. Europe’s stock markets rallying today; US stock indexes also better. At 9:30 the DJIA opened +95, NASDAQ +25, S&P +10. At 9:30 the 10 yr note at 1.65% +6 bp; 30 yr mortgage price down -33 bp. Within 5 minutes of the opening of the stock market the DJIA was up 132 points. The ECB left its benchmark interest rate at a record low of 0.75% today, as expected. The Bank of England kept its key rate at 0.5 percent and held its bond-purchase target at 375 billion pounds ($590B) today. the European Central Bank cut its economic forecast for the region and detailed plans to buy bonds. The ECB outlined what its bond buying program would do; buy bonds from countries struggling, the terms would be bonds with one to three maturities. Countries asking for the assistance to keep their interest rates from increasing would have to agree with terms sat out by ECB that will force more austerity and spending cuts. There will be no limit to how much countries can sell to the ECB; each month the ECB will publish which countries sold to the ECB. The German 10 yr bund yield has increased 10 bp this morning to 1.50%. The last data point today; at 10:00 the August ISM services sector index, expected to be at 53.0 frm 52.6 in July, increased to 53.7, the best since May. Another data point that is better than forecasts. Tomorrow the BLS releases its August employment data. The unemployment rate expected unchanged at 8.3%, non-farm jobs +125K and non-farm private jobs +134K. The ADP data this morning may cause traders to increase their outlook after the payroll people said 201K private jobs. The bond and mortgage markets have been weakening since last Friday and now at crucial technical levels. With today’s data markets now questioning the expectations that the Fed will ease in Sept. Since Tuesday the 10 yr note has been increasing, up 4 bp on Tuesday and Wed, add another 7 bp this morning. Mortgage prices held well until this morning. If the August employment report is better than expected tomorrow the easing idea will likely fade.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Another quiet start this morning in the stock and bond markets. At 8:30 the 10 yr +2 bp at 1.58%, stock indexes mixed but essentially unchanged. At 8:30 two Q2 reports; Q2 productivity expected at +1.9% increased to +2.2% (the advance report last month had productivity at +1.6%), Q2 unit labor costs expected at +1.4% was +1.5% (in the advance report last month costs were +1.7%). Increasing productivity leads to lower unit labor costs. There was no noticeable reaction to the reports. In Europe this morning more talk from the ECB but still concerns from Germany that may scuttle Mario Draghi’s plan to buy government bonds with maturities of three yrs or less. His proposal reveled today involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money ( the ECB will remove from the system elsewhere the same amount of money it spends). The ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets. Draghi told the European Parliament the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency. The plan will be debated today and tomorrow Draghi will announce what the outcome of the ECB meeting decides tomorrow. There appears to be a consensus is forming except in Germany’s Bundesbank with concerns the plan would increase inflation in the region. The ECB plan caused the euro currency to firm this morning, but not much. The US 10 yr yield increased by 2 bp on the report. The EU has had many ideas over the last three years but to no avail improving the debt crisis that threatens to drive Spain and Italy into depression unless there is some relief on borrowing costs. Markets are generally numb to news from the region as every plan or thought has been shot down. European stocks advanced on the report; US stock indexes prior to the 9:30 open little changed. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet. Europe’s economies still declining; dragging global economies with it. In Germany retail sales fell 0.9% from June, when they gained 0.5%, today’s report showed. France reported a gain of 0.9%, while sales fell 1.9% in Spain. Mixed data as is the case in the US with some data better while most are slipping. The Fed is poised to ease again, pushing interest rates lower; but no one has explained to my satisfaction how keeping their historic low interest rates low will add jobs or increase business spending. In terms of improving the economy, the Fed is pushing on a string with little to show for it except a ballooning Fed balance sheet. Even Bernanke says it will take more fiscal changes to turn the economy on. Lower interest rates have stabilized the housing markets but even that isn’t much of a boost as evidenced by the MBA mortgage applications report today. Overall mortgage applications decreased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 31, 2012 The Refinance Index decreased 3.0% from the previous week to the lowest level since May 2012. The seasonally adjusted Purchase Index decreased 0.8% from one week earlier. The refinance share of mortgage activity remained unchanged at 79 percent from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.0% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.78% from 3.80% with points decreasing to 0.37 from 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.05% from 4.06%, with points decreasing to 0.32 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.54% from 3.60%, with points decreasing to 0.44 from 0.48 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.10% from 3.12%, with points decreasing to 0.37 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.64% from 2.68%, with points decreasing to 0.35 from 0.36 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +24, NASDAQ -2, S&P +1. The 10 yr note rate at 1.59% +2 bp. 30 yr mortgage prices at 9:30 -3 bp, holding well. Treasuries and MBSs still hold a bullish technical bias, we go with the tape. BUT always nervous; buy the rumor sell the fact. Has the bond market already discounted a Fed easing at the Sept meeting? The 10 yr note rate has fallen from 1.86% to its recent low at 1.55% (1.59% this morning) over the last 10 sessions since the FOMC minutes and comments from Bernanke. The only way we will actually know is after the fact. Tomorrow’s August employment data will provide a clue on the reaction to whatever the report reveals. Just saying; keep an open mind now and don’t anticipate rates are set to fall more. We remain constructive because our technicals look good, but a little concerned about the underlying fundamentals.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. This week; a big week for the markets. Last week Bernanke somewhat signaled the Fed is ready to ease again, most likely buying more long dated treasuries and increasing the purchases of mortgage-backed securities. When will the Fed actually move? Presently the bond and stock markets are already beginning to discount an easing move as interest rates have fallen 30 basis points since the recent sell-off three weeks ago (10 yr note). Mortgage rates down 20 basis points. This week there are a number of key data points that will either confirm an easing move at the Sept 13th FOMC meeting, or hold off until the Oct meeting. Depends a lot on what this week’s data shows us. The two ISM August reports on manufacturing and services lead right into Friday’s August employment report. Stronger than expected data will diminish the outlook for easing in Sept; weaker will increase the likelihood of easing in Sept. Also this week the ECB will meet on Thursday; it has been three years of dealing with the incessant talk and not very much accomplished. Based on past performances from the EU a betting man would bet the outcome of the meeting will not reveal anything of consequence, just more hope and frustration for global markets. Not until Sept 12th when the German high court will rule on the legality of ECB buying sovereign debt. In the meantime and since the beginning of the EU collapse Germany still holds the cards, unless Germany will back anything suggested by the ECB, IMF or the EU has little chance of being implemented. This week markets may become volatile pending the data and especially August employment on Friday.