Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

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Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Europe’s stock market fell today and added to the negative attitude in US markets. The key US indexes at 9:00 down hard, the DJIA down 146 points. Earnings of 69% of S&P companies have been better but sales forecasts weaker, investors backing down with just two weeks until the election which at this point is the closest in many years. Moody’s downgraded some of the regions in Spain today setting up selling in the key markets in Europe. The euro dropped from a five-month high against the yen on the credit ratings of five Spanish regions and French industrial confidence fell to the lowest in more than three years. According to a newspaper in Spain the government told the EU it would miss its budget deficit target this year. The Spanish government told the EU its budget deficit in 2012 will be 7.3% of gross domestic product, exceeding a target of 6.3%. Last night’s debate on foreign policy, while not a love fest, did find the two candidates with common ground. Republicans think Romney won it, Democrats think Obama won it. It therefore was a tie. The 10 yr note is chopping around between 1.76% and 1.83% for the last six sessions; the key 200 day average is at 1.78%. This morning the 10 is trading at 1.77% after closing yesterday at 1.81%. 30 Yr MBSs weaker this morning following the 10 yr as they always do; yesterday the price for 30 yr mortgages was down 22 bp, this morning up 22 bp. No direct trend in either the 10 yr or mortgages. In the next two weeks it is likely there won’t be much change in the bond and mortgage markets with the election still up for grabs. There are no economic reports again today. The FOMC meeting is getting underway, it’s a two day meeting with the policy statement at 2:15 pm tomorrow. Whenever the Fed is in play there is always some wild speculation about what may be expected; someone yesterday floated the idea the FOMC will announce an increase in the amount of MBSs the Fed agreed to buy at the last meeting. $40B a month is the amount the fed is currently committed to, it isn’t likely the FOMC will add more to the monthly buying, but that doesn’t stop gossip. This afternoon Treasury will auction $35B of 2 yr notes beginning three days of borrowing. Tomorrow $35B of 5 yr notes, Thursday $29B of 7 yr notes. At 9:30 the DJIA opened -166, NASDAQ -32, S&P -17. The 10 yr note 1.77% -4 bp; 30 yr MBS +37 bp. The stock market is being pummeled this morning; yesterday the DJIA was down 100 points in early afternoon but in the final hour the index climbed back to close +2 points. The reversal yesterday was apparently due to a big buy program on Apple, this morning it is back to selling on weaker earnings outlook, the coming fiscal cliff, the election and what is almost a given, the end to the payroll tax cut at the end of the year. As usual, weaker stock market drives interest rates lower. Although the bond market is stronger this morning, the technicals are still slightly bearish. The relative strength index bearish and the 10 unable so far to hold below its 200 day average. While soft, the rate markets are subject to how investors see the next couple of weeks and the policy statement from the FOMC tomorrow afternoon.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com After the price gains on Friday the interest rate markets have retreated this morning; the 10 yr note yield fell 7 bp on Friday, at 9:15 up 4 bp, 30 yr MBS prices increased 39 bp Friday, this morning -19 bp. Still better than the close last Thursday but the negative perspective is still there. This morning in pre-market trading stock indexes were trading better, however still not above the fair values frm Friday’s strong sell-off (-208 DJIA). The EU running on its tread mill, nothing of substance over the weekend. Interest rates in Spain are higher today. Spain’s 10-year yield rose five basis points, or 0.05 percentage point, to 5.42%, the biggest increase since last Monday. The Italian 10-year yield dropped three basis points to 4.74%. An official said the debt agency will “revise and recalibrate the issuances in light of the retail sale’s success.” The sale attracted bids for 18 billion euros, double the two previous offers combined. The debt agency’s review aims “in particular at reducing the amount of short-term issuances,” said the official, who declined to be identified. The German 10-year bund yield rose four basis points to 1.63% after climbing 15 basis points last week. Volatility on German bonds was the highest in euro-area markets today. At 9:30 the DJIA opened -24, NASDAQ unch, S&P -1. The 10 yr note rate at 9:30 1.80% +4 bp; 30 yr MBS price -8 bp after starting down 18 bp at about 8:30. There are no data points today; the day’s activity in the bond and mortgage markets will be driven by the way the stock market trades. Friday saw a huge sell-off in the stock indexes and in turn the bond and mortgage markets rallied nicely. Q3 earnings and forecasts are seen as softer than what traders were expecting. Tonight’s Presidential debate, the last of three, may be pivotal as the topic is foreign policy. Going into the debate the most recent polls have the two candidates even. The recent jump in interest rates has the bellwether 10 yr note playing back and forth around its 200 day average. The third time since late August the note has increased to the average, so far there is support when it gets to that strong longer term technical level. The previous two forays above the 200 have led to yield improvements, around the 1.80% rate the 10 finds support; however each rally off the 200 day average has been higher than the previous rally indicating rallies in the bond and mortgage markets are not as strong, failing to match the preceding rally----not a positive outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stocks following Europe’s markets, lower this morning. Treasuries and MBSs are not rallying much, but are slightly better than yesterday’s closes. European stocks fell for the first time in five days, the European Union summit failed to discuss further financial assistance for Spain. European leaders committed to their goal of creating a regional bank supervisor by year-end. The European Union will seek to agree on a framework that makes the European Central Bank the main bank supervisor by Jan. 1, according to conclusions of the summit meeting released early today. Yields on benchmark 10-year German bunds dropped three basis points to 1.60%, the US 10 yr also slipped 3 bp to 1.80% at 9:00 am. The global economic outlook has improved in the last few weeks with most measurements better than forecasts. Data this week showed China’s industrial production, retail sales and fixed-asset investment accelerated in September, U.S. housing starts jumped to a four-year high and an index of American leading economic indicators rose in September by the most in seven months. The October Philly Fed business index climbed back above zero, the pivot for expansion and contraction, to+5.7; not a lot above the zero level but forecasts were for +0.5 frm -1.9 in Sept. Today is the 25th anniversary of the 1987 stock market crash. For those of us that were involved I it, it brings back memories---some good but mostly bad. Managing mortgage interest rate risk was a new thing for mortgage bankers; hard to understand and wasn’t being used much by The Street. Interest rates were increasing prior to the crash, we were heavily short the bond market in a cross hedge against long mortgage positions, as rates increased the short side of the hedge worked well, profits from short bond futures were offset by losses in the MBS market. The key was managing the spread between movement in the MBS market and treasuries; we adjusted the levels of the hedges based on the basis change. For the previous few years it worked well, removing the risk of changing market conditions. Then the crash; as I recall it we saw a change coming the previous few days before the actual crash and began unwinding the hedges somewhat, but not all of them were lifted. When the equity market finally crashed losing about 40% of value, I was caught short in three days of limit up moves in the bond market---could not get out. Clients were panicking with daily margin calls of as much as $500K a day; it took two weeks to work out of it but in the end we were able to work it out with no losses to clients but the experience cost me a lot of clients, the kitchen became too hot. I took a few days off and checked into an asylum. The problem with hedging in the futures markets is that margin calls must be met with cash immediately each day while the value that was increasing on the other side took as much as two months to get; the MBSs had to be packaged and delivered before the gains were put in the bank. At 9:30 the DJIA opened -60, NASDAQ -16, S&P -6. 10 yr note at 1.81% -2 bp; 30 yr MBSs +13 bp frm yesterday’s closes. Within 15 minutes the DJIA was off 100 points. No running back to the bond market however, the 10 yr note has not changed much even with the equity market being pummeled early today; in a sense confirming the bearishness that is now embedded in fixed income markets. At 10:00 Sept existing home sales were expected down 1.5% to 4.75 mil units. As reported sales were down 1.7% but at 4.75 mil as expected; sales up 11% yr/yr, the 15 month the yr/yr has been better. The median sales price at $183,900 +11.3% yr/yr. Inventory to sale ratio under 6 months’ supply. 3.32 mil units -20% yr/yr. Foreclosed properties in the hands of the banks distort the sales price average and inventory levels. Overall the report didn’t generate any initial interest in the markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to this morning the benchmark 10 yr note rate has increased 12 basis points in yield over the previous two sessions and 18 basis points in the last three sessions. A massive exit from fixed income investments and into the equity markets. Easing of tensions in the EU with Spain’s debt rating re-affirmed by Moody’s that it is still investment grade debt and increasingly better data on the US economy---the two issues that have turned interest rates around. 30 yr mortgage rates over the last three sessions are up 10 basis points. This morning the bond and mortgage markets are rebounding a little from the recent strong selling. The 10 yr note at 9:00 at 1.79% -3 bp and MBS 30 yr price up 17 bp in price, not much but anything is better after yesterday’s price beatdown of 55 bp and 24 bp on Tuesday (total 79 bps). At 8:30 weekly jobless claims were expected to be up 36K after the bad data out last week; as reported claims were up 46K back to 388K. The “consensus” estimate was for claims was 365K. Typically at the beginning of a quarter there is an increase in claims due to adjustments, last week clams fell by 30K as one state didn’t report. The gains this week are higher than forecasts but the four-week moving average, a less volatile measure than the weekly figures, rose to 365,500 last week from 364,750. The average number of claims over the past two weeks was in line with the four-week average, indicating little change in the pace of firings outside the seasonal swings. Spain’s bonds rose for a third day as the nation raised more than planned at a debt sale, while European stocks fluctuated before a two-day summit of leaders in Brussels. Spanish 10-year yields fell to a six-month low and were at 5.41%. As long as Spain’s yields continue to decline the US bond market will struggle to improve. Investors are less concerned about a debt crisis boiling over than just a few weeks ago; no reason now to stay in treasuries with tensions easing and US economic data improving. The EU summit meeting Brussels begins tomorrow; in the past the summit meetings didn’t accomplish much. At 9:30 the DJIA opened -20, NASDAQ -9, S&P -3. The 10 yr note at 1.80% -2 bp; 30 yr MBSs +17 bp in price. 9:45 this morning brought the Bloomberg consumer comfort index at -34.8 frm -38.5. Not a huge improvement but does confirm the U. of Michigan sentiment index and the Conference Board’s consumer confidence improvements. The index is the highest since last April. At 10:00, a few minutes ago, the October Philadelphia Fed business index measuring the situation in the NE region, was expected at +1.0 frm -1.9 in Sept and -7.1 in August; the overall index increased to 5.7 above zero and back to slightly more bullish activity. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. There was little initial reaction to the better index reading. Sept leading economic indicators was expected up 0.2%, as reported it was up 0.6% but August indicators were revised lower, from -0.1% to -0.4% kind of negating the better Sept data. No matter how we look at it, the US and global interest rates are increasing. Technically the 10 yr cracked its 200 day average yesterday, unless it rallies back in the next day or two the outlook is that the note will continue to increase to its recent high on 9/14 at 1.89%. MBSs also technically weak now and will continue to see prices fall unless the 10 rate falls back. Don’t fight the tape.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com More selling in the treasury and mortgage markets again today taking the 10 yr note to 1.77% where the 200 day average resides (1.78%). MBS prices early were down 21 bp from yesterday after declining 24 bp yesterday. The technical picture has changed to bearish, however with the recent volatility it is still too soon to believe that rates have finally bottomed and will continue to increase. This morning it isn’t the stock indexes that are driving rates higher, at 8:45 the DJIA up just 4 points. The push to higher rates is being driven by much better economic reports (retail sales, improvement in the housing market outlook) and relaxation over debt problems in the EU. Spain’s bond market is better on increasing belief it will ask for assistance frm the ECB to buy its bonds in the open market. Interest rates have been driven down on a weakening US economy and safety moves against the potential of debt defaults in Italy and Spain; presently those are off the table. This morning at 8:30 more solid news for the housing sector. Sept housing starts were expected up 2.4% to 768K units (annualized); starts jumped 15% to 872K units. Sept building permits were thought to be up 1.5% to 815K units, permits exploded 11.6% to 894K. Starts were up to the highest levels in 4 years, the best since July 2008, more evidence that the sector is recovering. The number of permits increased by 45.1% since September 2011, the biggest annual jump since 1983. Construction of single-family houses jumped 11% from August to a 603,000 rate. Work on multifamily homes, such apartment buildings, increased 25.1% to an annual rate of 269,000. Yesterday the Oct NAHB housing market index increased for the fifth consecutive month in a row. Hard to argue that housing isn’t recovering given the recent data. Spain’s government bonds advanced, pushing 10-year borrowing costs to the lowest in more than six months, after Moody’s Investors Service said it would keep the nation’s credit rating at investment grade. Italian and Portuguese securities also rallied amid optimism the euro region is making progress to contain the debt crisis. Moody’s cited a reduction in the risk of Spain losing market access because of the European Central Bank’s willingness to buy the nation’s bonds. German 10-year bunds fell for a third day (price); the yield climbed seven basis points to 1.61%, the highest level since Sept. 21. Spain’s yield fell 29 basis points, or 0.29 percentage point, to 5.52%. The EU summit meeting begins tomorrow. At 7:00 this morning the weekly MBA mortgage applications data: purchase applications are on the rise, up 1.0% in the October 12 week for a fourth straight gain and at its best level since June. This index is pointing to strength for underlying home sales. The refinance index, which has been near three year highs, fell back 5.0%. Rates remain extremely low, at 3.57% for conforming loan balances ($417,500 or less). At 9:30 the DJIA opened -39, NASDAQ -10, S&P +1. The 10 yr at 1.77% +5 bp while 30 yr MBS price -6 bp in volatile trading so far this morning (-27 bp at one point this morning). There isn’t anything on the calendar for the rest of the day. The bond market is testing critical longer term technical levels; the 200 day average is at 1.78%, the 10 briefly hit it then backed down to 1.77%. The 200 has held selling two times, the first on 8/20 and the second on 9/13; in both cases the 10 yr note then launched strong rallies. Will the 200 hold the rate again? If not the 10 is likely to continue to work up to 1.88% to the next resistance level. MBS’s will follow, don’t be taken in that just because the Fed is buying $40B a month of MBSs that mortgage rates will diverge from the direction of treasuries. The MBS market is technically stronger than treasuries on the Fed buying, this morning holding its support level at 104.69 bp.

Mortgage Rates

Morgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Not a good start this morning; the bond and mortgage markets opened weaker with US and Europe stock markets rallying again today. At 9:00 the 10 yr note up 3 bp to 1.70% and 30 yr MBSs -24 bp. European stocks had the first back- to-back gains in a month, commodities rose and the euro strengthened as two German lawmakers said the country is open to Spain seeking a precautionary credit line. Growth in the U.S. economy will probably pick up to 3.5% next year, reducing the unemployment rate to near 7%, Federal Reserve Bank of St. Louis President James Bullard said late yesterday. Headlines like those are not positive for long term interest rates. Spain’s 10-year bonds rose, pushing the yield five basis points lower to 5.77% on the comments out of Germany. German bunds fell, pushing the yield seven basis points higher to 1.54%. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which predicts economic developments six months in advance, climbed to minus 11.5 from minus 18.2 in September. All the key news early this morning has been negative for the US interest rate markets. At least for the moment the economic outlook has taken a turn for the better. As far as comments from St. Louis Fed Pres. Bullard, it can be taken with a little salt; Fed officials are all over the place on their individual views about the future of the economy. Nevertheless, as we have noted many times, the minute there is a turn in the economic outlook interest rates will climb. It has been our view for the past month that mortgage interest rates are not likely to decline much frm the lows seen a few weeks ago. 8:30 data, Sept CPI was general in line; up 0.6% overall and +0.1% ex food and energy, the core was expected to be up 0.2%. Inflation gets a lot of ink but there isn’t any sign of it now or in the immediate future. At 9:15 Sept industrial production and capacity utilization were released. Production expected up 0.3%, increased 0.4%. Factory use it on target at 78.3%. There was no immediate reaction to the data this morning; all focus on Europe and US equity markets. At 9:30 the DJIA opened +69, NASDAQ +9, S&P +7. The 10 yr note at 1.70% +4 bp; 30 yr MBS price -27 bp frm yesterday’s close and down 42 bp frm 9:30 yesterday. The final data today; at 10:00 the Oct NAHB housing market index, expected at 41, as reported it increased to 41 frm 40 in Sept. This is the fifth straight gain and lifts the index to a five-year high. An optimistic outlook is now the dominant factor lifting the index as six-month sales expectations are up a big eight points to 51. The component for current sales, at 42, is up a solid four points in the month. Although bonds and mortgages are lower in price this morning, both continue to trade in very tight ranges. On one side the current view is looking a little better for the economy, at least based on Bullard’s comments yesterday and the strong retail sales in Sept, on the other side helping to keep long term rates from increasing much the Fed is pumping a lot of money into the system. $40B a month of MBSs and continuation of Operation Twist are countering fears of inflation and the belief that Europe’s debt crisis may be easing. The economy still has a lot of headwind however; who will be elected and how will Congress handle the fiscal cliff coming at us quickly?

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 weaker this morning on stronger stock indexes in the US and Europe. At 8:30 Sept retail sales were better than expected, up 1.1% overall and up 0.9% when auto sales are extracted, both better than forecasts. August retail sales were revised to +1.2% frm +0.9%. Also at 8:30 the Oct NY Empire State manufacturing index frm the NY Fed, a little better at -6.16 frm -10.4 in Sept. The new orders component -9 frm -14 in Sept; employment fell to -1.1, the lowest this year and frm +4.3 in Sept. In early trading the 10 yr note rate at 1.68% up 2 bp frm Friday while 30 yr mortgage prices at 9:00 were -4 bp frm Friday’s close and so far successfully holding at its 20 day average. Fedspeak this afternoon; 12:45 Jeffery Lacker, at 1:10 James Bullard. Unlikely anything new, Lacker has been opposed to most of the Feds’ recent easing and policy statements while Bullard seems to ride the fence with differing views as the situation changes. There are a number of key economic releases this week that may cause an increase in volatility in US financials pending how the data is reported. The US stock market took a big hit last week with the DJIA down about 280 points, early this morning the index traded better along with Europe’s markets better. The key indexes were better prior to the 8:30 economic data but didn’t add to the gains on the stronger retail sales but the Empire data was a negative with employment the lowest reading this year. Still look like equity markets are struggling. Spanish 10-year bond yield rose eight basis points to 5.71% and the equivalent Italian yield was five basis points lower at 4.94%. A report from China showed inflation in the world’s second-biggest economy was close to the slowest pace in two years last month. Consumer prices rose 1.9% from a year earlier, while the producer-price index fell 3.6%. At 9:30 the DJIA opened +26, NASDAQ +10, S&P +2. The 10 yr and MBSs recovered from early low prices on strong retail sales; at 9:30 the 10 yr unchanged at 1.66% after increasing to 1.68% earlier/ 30 yr MBSs were down 12 bp on 8:30 data but by 9:30 back to unchanged frm Friday. At 10:00 August business inventories were up 0.6%; estimates were for an increase of 0.5%. No reaction to the report. Later this week the EU will hold another of its summit meetings; not sure what if anything will be accomplished as the region continues to push on the string with endless meetings and comments that still haven’t taken the region back from the cliff. That said however, interest rates in Greece, Spain and Italy have been falling recently suggesting there is progress being made. Tomorrow another Presidential debate. After the first one markets will likely take notice as the polls appear to be about even. By 10:00 this morning, after opening better the key indexes are now well off their earlier high at 9:30 open. If the indexes turn negative look for MBS and treasury prices to improve. The rate markets continue to hold minor positive technicals; MBSs holding at their 20 day moving average while the 10 yr note hangs precariously below its 20 and 40 day averages but so far hasn’t been able to move away from them. Still good but it wouldn’t take a lot to turn the bond market back to less optimistic outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Sept PPI jumped more than expected , +1.1% with forecasts of +0.8%. The core rate (ex food and energy) was better at unchanged against estimates of +0.2%. The increase in the PPI largely due to fuel costs increasing in Sept. Inflation gets a lot of ink these days with the Fed printing money at light speed but there isn’t any evidence on increases in the core rate which is where the focus is. Facing a global economic slowdown, businesses may have difficulty passing higher energy costs onto customers, keeping a lid on prices. In addition, weak demand from abroad and in the U.S. will probably prevent the cost of raw materials from flaring, limiting inflation pressures and allowing the Federal Reserve to focus on jump-starting employment growth. The core index increased 2.3% in the year ended in September, the smallest 12-month advance since June of last year. Core prices were held in check by a 0.7% drop in the cost of communications gear, the biggest decrease in more than eight years. Prices for computers and related equipment dropped 1.5%, helping to offset a 0.3% gain in light motor trucks according to the Labor Dept. Prior to 8:30 PPI data the 10 yr note rate was up 3 bp from yesterday’s close. After PPI the 10 got a bounce back to unchanged as more confirmation that inflation is still not on the radar. Inflation fears will stay even though there isn’t any evidence yet that it is increasing. With long term interest rates at these low rates, traders and investors will not ignore the possibility. Investors still willing to buy these low yields based on a model created by the Fed; the 10-year term premium, that includes expectations for interest rates, growth and inflation, was negative 0.89%. A negative reading indicates investors are willing to accept yields below what’s considered fair value. The average for the past 10 years is +0.44%. The all-time low was negative 1.02% on July 24. After four days in a row of declining stock indexes, this morning the market is looking a little better prior to the 9:30 open. Recent activity in the equity market has been discouraging; the indexes have tried to improve everyday recently only to fall apart in the late afternoon. Yesterday the DJIA held a 95 point gain in the morning but closed -18; the broader S&P index ended unchanged. In Europe this morning reports that August industrial production increased 0.6% frm July (July also was +0.6% frm June). The better report however didn’t pass through to Europe’s key stock markets; all weaker today. At 9:30 the DJIA opened +15, NASDAQ and S&P -1. The 10 yr note at 9:30 1.66% -1 bp; 30 yr MBS +2 bp. 9:55 brought the U. of Michigan consumer sentiment index was generally expected unchanged at 78.3; as reported the index jumped to 83.1, a huge increase. The reaction sent the 10 yr note up 1 bp and fueled stock indexes higher. The highest level since before the recession began five years ago, raising the odds that retailers will see sales improve. The increase attributed to rising stock and property values along with falling joblessness.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Europe’s stock markets better today pushing US stock index futures higher prior to the open at 9:30. Yesterday US stocks fell on weak earnings from Alcoa that said the demand for aluminum was declining as the global economy slows. Treasury sold $21B of 10 yr notes yesterday, the demand for the notes was very strong as was the 3 yr note auction on Tuesday. The 10 yr note yield fell to 1.69%, down 4 bp from Wednesday but MBSs didn’t improve on the day, but were better than when morning prices were set by lenders (most improved prices in the afternoon). At 8:30 weekly jobless claims dropped significantly, down 30K from last week to 339K, the lowest level since Feb 2008. The consensus estimate was for 370K claims about unchanged from the previous week. Last week’s claims were revised; the number of applications for the prior week up to 369,000 from a previously estimated 367,000. Claims typically surge at the start of a quarter as people receiving benefits reapply in order for the government to recertify their applications. The year’s increase was smaller than projected, because one large state showed a drop rather than an increase, don’t know which state yet. The four-week moving average for jobless claims, a less- volatile measure, fell to 364,000 from 375,500. Twenty-eight states and territories reported an increase in claims, while 25 reported a decrease. The bottom line; the report is somewhat flawed due to lack of data. Kind of reminds of the Sept BLS employment data last Friday. The U.S. trade deficit widened in August as slower global growth reduced demand for American exports. The gap grew 4.1% to $44.2B from $42.5B in July, Commerce Department figures showed today in Washington. Exports decreased to the lowest level since February. Sept import prices increased 1.1%, more than the 0.7% expected. Export prices increased 0.8%, double what was expected. Prices increasing while global economy is declining? Nothing significant out of Europe; Spain still refuses to ask the ECB for assistance fearing more austerity will be required. Meanwhile S&P lowered its credit rating to BBB- frm BBB+, one notch above junk bond status. Investors are shunning Spanish securities as Prime Minister Mariano Rajoy weighs a second bailout amid a deepening recession. Rajoy has held off on a decision about whether to request European Central Bank and EU bond buying to lower borrowing costs. He’s called for more details on what would be demanded of Spain in return for the support. If you are having a hard time trying to sift through the mess in Europe, don’t fret, most others are also. It is a maze of incongruities that never ends; we talk about it because whatever happens there has a direct impact on our bond and stock markets. At 9:30 the stock market opened better after three days of declines. The DJIA started +60, NASDAQ +23, S&P +9. The 10 yr note at 9:30 1.73% +5 bp; 30 yr MBS price down 14 bp frm yesterday’s close. At 1:00 Treasury will conclude this week’s borrowing with $13B of 30 yr bonds; the auction will do well as the previous two auctions have seen this week. The nice rally yesterday in treasuries hasn’t seen follow-through this morning. As noted yesterday technically the rally didn’t change the slight negative bias for the 10 yr note. The 10 yield did not break below its 20 and 40 day averages, this morning the yield is up and still above the key levels with the relative strength still slightly bearish. We continue to believe the mortgage rates are not likely to decline much more, the lows have been achieved at the end of Sept.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock index futures trading early this morning were a little soft, in Europe the key stock markets were lower on concerns of increased weakness in China’s economy. China car sales unexpectedly shrank for the first time in eight months, adding to previous reports that its economy is slowing. Yesterday Alcoa reported earnings; the CEO saying the slowing Chinese growth will cut demand for aluminum. Adding to pressure for equity markets today; The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate. Still no actual movement with Spain’s debt issues. While the European Central Bank’s plan to purchase bonds of debt-burdened countries has pushed down bond yields, officials are waiting for a bailout request from Spain before putting the program into action. Early activity in the bond and mortgage markets this morning had prices lower and yields a little higher. At 9:00 the 10 yr note yield at 1.74% +3 bp, is the highest Sept 24th, MBS prices at 9:00 -31 bp frm yesterday’s close. There isn’t much news out there today, just the same stuff; Europe, China, the fiscal cliff approaching, nothing new in any of that. The bond market does not look good from a technical perspective, unless support increases we expect more selling that will test the 10 yr note’s 200 day average at 1.79%. The 200 day has been tested twice before and in both instances it held and the 10 yr rate declined. Remember the Sept employment report last Friday? No one in the markets does anymore. No political salvos, no mention one way or the other on the markets or from pundits and media. When data is so far off estimates it doesn’t hold water for very long. Mortgage applications decreased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 5, 2012. The Refinance Index decreased 2% from the previous week. The seasonally adjusted Purchase Index increased 3% from one week earlier. The unadjusted Purchase was 12% higher than the same week one year ago. The refinance share of mortgage activity remained unchanged at 83% from the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.9% of total applications, matching the lowest level since December 2009. The government share of purchase applications was unchanged from last week at 35.5%, the lowest level since the beginning of the series. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.56% from 3.53%, with points increasing to 0.39 from 0.35 (including the origination fee) for 80% loans. The 30 year contract rate increased for the first time after declining for six consecutive weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.74 percent, the lowest rate in the history of the survey, from 3.82 percent, with points increasing to 0.40 from 0.32 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34%, the lowest rate in the history of the survey, from 3.37%, with points increasing to 0.71 from 0.36 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.88%, the lowest rate in the history of the survey, from 2.90%, with points increasing to 0.40 from 0.27 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.60% from 2.59%, with points increasing to 0.36 from 0.34 (including the origination fee) for 80% loans. At 9:30 the DJIA opened -24, NASDAQ and S&P -1. The 10 yr note yield 1.74% +3 b; 30 yr MBS price -26 bp frm yesterday’s close. At 10:00 August wholesale inventories, expected +0.4%; inventories increased 0.5% with sales up 0.9%. Two months in a row that inventories have increased. A little bounce in the stock market on the report. At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr note saw the highest demand on record. The demand for the 10 yr will influence the way the 10 trades after the auction, if demand is strong the softness in the note this morning will likely improve and take MBS prices higher from present levels. At 2:00 the Fed’s beige Book, the staff’s detailed report on the economy from the 12 districts. Also at 2:00 Treasury will report the Sept budget data, the outlook is for a flat reading (no deficit, no surplus), and it will end the 2012 fiscal year with the total deficit in the year.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets were closed yesterday for Columbus Day, the stock market traded. Key indexes were lower yesterday with the DJIA down 26.50 and NASDAQ -24. This morning in pre-market trade stock indexes were better indicating a better open at 9:30. The 10 yr note this morning at 7:00 am was up15/32 to 1.69% frm 1.74% at the close on Friday; by 9:00 however the 10 yr gave back most of the overnight improvement, at 1.72% up 6/32. Mortgage prices at 9:00 up just slightly +8 bp. There are no economic reports today. At 1:00 Treasury will auction $32B of 3 yr notes beginning three days of borrowing. Wednesday $21b of 10 yr notes and Thursday $13B of 30 yr bonds. The U.S. government has attracted a record $3.16 in bids for each dollar of the $1.59 trillion of securities it has sold in 2012, according to data compiled by Bloomberg. That exceeds the previous high of $3.04 set last year. Good demand primarily driven by safety moves against the on-going morass in Europe. The World Bank said growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2% this year from 8.3% in 2011. That is the slowest pace since 2001, according to World Bank data, and lower than a forecast in May of 7.6% The International Monetary Fund is set to revise down its global outlook for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis. European officials will move to prevent Spain from triggering a new round of convulsions as policy makers begin preparing for a summit next week aimed at easing the region’s three-year-old debt crisis. European finance ministers met in Luxembourg yesterday to discuss Spain’s overhaul effort and closer banking cooperation. Today, German Chancellor Angela Merkel makes her first visit to Greece since the crisis began in 2009. Spanish Prime Minister Mariano Rajoy travels for talks with French president Francois Hollande in Paris. EU leaders gather for a summit in Brussels on Oct. 18-19. German industrial production declined in August as the debt crisis damped economic growth and prompted companies to scale back investment. Production fell 0.5% from July, when it gained 1.2%, the Economy Ministry in Berlin said yesterday. Economists had forecast a drop of 0.6%. German bonds slipped as Chancellor Angela Merkel arrived in Athens for her first visit to Greece since the financial crisis began in 2009. The 10-year bund yield added two basis points to 1.50% today. Last Friday’s Sept employment report is still being debated; some think it was a conspiracy driven by the Administration, others see it at as flawed data. Neither is correct (I hope), I can’t wrap my arms around the theory advanced by ex CEO of GE Jack Welch. The data is surely to be revised in future reports. The markets (bonds and stocks) didn’t take the report seriously as there was only a minor improvement for the key indexes and then yesterday the meager Friday gains were taken back. The interest rate markets didn’t sell off as would be expected if the 0.4% decline in the unemployment rate in one month was taken seriously. The economy is growing at less than 2.0%, no way that many real jobs were generated in one month, no other data suggests anything near that. Traders are simply ignoring the report and moving on. The National Federation of Independent Business’s optimism index fell to 92.8 from an August reading of 92.9. Four of the 10 components that make up the gauge decreased. Confidence among U.S. small businesses cooled in September as fewer companies said they planned to hire or invest in new equipment. The fourth decline in the past five months for the measure showed business leaders are probably putting off some of their hiring and investment decisions because of a lack of clarity on tax and regulatory policy. At the same time, more companies expected better economic conditions in six months, signaling a pickup in sales and employment may take time to develop. At 9:30 the DJIA opened -24, NASDAQ -12, S&P -3. The 10 yr note +6/32 1.72% -2 bp; 30 yr MBS prices +9 bp.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; doesn’t kick off until Tuesday for the bond and mortgage markets, but stock will traded Monday. Last week selling took the 10 yr note up 12 basis points in yield however the MBS market still strong with the Fed back-stopping any significant selling. Treasury will auction $66B of notes and bonds this week beginning on Tuesday with the 3 yr, 10 yr on Wednesday and 30 yr bonds on Thursday. There isn’t a lot of critical data this week to work on. Weekly jobless claims, the Fed Beige Book and Sept PPI are about it. Friday’s employment report showing the unemployment rate that fell from 8.1% to 7.8% is still being discussed; the BLS saying 114K new jobs created in Sept but that part time workers jumped 873K, most of the increase were workers in the 20 to 24 yr old workers. Also adding to the decline in the unemployment rate, an increasing number simply no longer looking for a job. The reaction to the data didn’t excite the US equity market, the DJIA ended up just 34 points; the 10 yr note yield did increase as did MBSs but mortgages held better. The 10 yr had been weakening for a few days prior to the employment data, mostly due to relaxation over the EU mess. The Sept employment can, and should, be considered an outlier rather than an indication jobs are being generated, that seems to be what stock market investors are thinking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today’s Sept employment report wasn’t good for the bond market and only partially good for the economic outlook. The headline that will echo around the country, the unemployment rate declined frm 8.1% in July and August to 7.8%. Non-farm job growth was about in line with forecasts, +114K; private jobs were thought to be up 130K, as reported up 104K. July and August revisions to non-farm payrolls were revised higher by a total of 86K (+40K in July +46K in August). The average hourly earnings increased 0.3% after being flat in August. The unemployment rate is gathered through phone surveys by the BLS, asking if the respondent is looking for a job, has a job, or isn’t looking anymore, the drop implies more are now working. The household survey showed an 873,000 increase in employment, the biggest since June 1983, excluding the annual Census population adjustments. Some 582,000 Americans took part- time positions because of slack business conditions or those jobs were the only work they could find. The labor participation rate at 63.6% about unchanged from August. The 7.8% matches the January 2009 figure. Yesterday’s Sept National Federation of Independent Businesses painted a different view, further adding to the confusion on just what is happening in the employment sector. “September was another weak job creation month, owners remain pessimistic about the future and consequently hiring plans remain weak. Reported job creation for the past few months was negative, more workers let go than hired, suggesting a very weak jobs report for September”. No matter how it is sliced or diced, the employment report is better than what had been expected. The reaction sent the bellwether 10 yr note yield up from 1.67% yesterday to 1.72% at 9:00 and above its 20 and 40 day averages. Mortgage prices declined 25 bp frm yesterday’s close by 9:00. US stock indexes better at 9:00, DJIA up 54; not as strong as we would have expected. The remainder of the day will trade from the employment report. In Europe, the key stock markets rallied on the US employment report. Europe is still n play but not today as it is all about how markets judge the employment report. A possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. There’s no guarantee that Prime Minister Rajoy will ask for aid from the EU rescue funds and he’s facing a challenge to deliver the budget-deficit cuts pledged. Today’s employment data was so far off all estimates that it has already drawn sharp comments. Shock in some quarters; getting too testy: former General Electric Chief Executive Officer Jack Welch accused the Obama administration on Twitter of manipulating today’s employment data for political advantage. “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.” From my perspective, the headlines were very good, but only 114K new jobs created tends to temper the data. At 9:30 the DJIA opened up just 50 points, NASDAQ +12, S&P +6; not much considering the headlines, suggesting traders are not completely enamored with the report. The 10 yr note at 1.72% +5 bp and 30 yr MBS price -15 bp after being down 28 bp at 9:00. The 10 yr note high yield was 1.74% at 9:00. The initial reaction to the data this morning has driven the 10 yr note rate above its 20 and 40 day averages, the 14 day RSI has turned negative. The MBS market, although weaker this morning is holding better technically, on the Fed buying. We don’t make much of the present increases in rates unless it continues on Tuesday (Monday bond and mortgage markets will be closed for Columbus Day—stocks will trade).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages started weaker this morning with stock indexes better. At 8:30 weekly jobless claims were about what had been expected, up 4K to 367K; last week’s claims revised from 359K to 363K. Estimates for claims were for an increase of about 7K; a Labor Department official today said there was “nothing unusual” that affected today’s figures, and no states were estimated. The four-week moving average, a less-volatile measure, was unchanged at 375,000. The number of people continuing to collect jobless benefits also was unchanged at 3.28 million. Eighteen states and territories reported an increase in claims, while 35 reported a decrease. There was no reaction in financial markets to the report ahead of tomorrow’s Sept employment data. In the UK the Monetary Policy committee voted to keep its stimulus plan going as increased concerns over inflation begin to roil the opposition to the $640B bond purchase program. Bank of England policy makers also left their key interest rate at a record low of 0.5%. The ECB kept its benchmark interest rate at a record-low 0.75% after a policy meeting today, no surprise there. Speculation that ECB President Draghi will today provide more detail of the bond-purchase program announced last month. Draghi will speak at a news conference to explain the decision at 2:30 p.m. He is waiting for Spain to decide what it will do; ask for the bailout loan or not; one month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Europe’s embattled southern fringe, Spanish Prime Minister Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it. The Spanish 10-year yield reached a euro-era record 7.75% on July 25, before Draghi pledged the next day to do “whatever it takes” to safeguard the monetary union. It is 5.85% today. At 9:30 the DJIA opened +40, NASDAQ +5, S&P +4. The 10 yr note at 9:30 1.65% +3 bp in rate; 30 yr MBS price -7 bp frm yesterday’s close and down -25 bp frm 9:30 yesterday. August factory orders were expected to have declined 6.0%; as reported orders fell 5.2% and August orders revised to +2.6% frm +2.8%. No noticeable reaction to the report. The Bloomberg Consumer Comfort Index rose in the week ended Sept. 30 to minus 36.9, a three-month high, from minus 39.6 in the previous period. The pickup also included less pessimism among households in their views on the buying climate and the economy. According to the report fifty percent of those surveyed had “positive” views of their finances, the most since July and a sign consumers will maintain their pace of spending. Higher home values, rising stocks and stable gasoline prices may be alleviating some of the anxiety caused by a labor market that’s shown scant improvement. The survey matches the improvement in the Conference Board’s consumer confidence index that increased to 70.1 frm 63.1 on 9/25. Tomorrow is employment day; generally a day accompanied with increased volatility due to the data mostly well off the mark of estimates. The present forecast is that non –farm jobs increased 113K, non-farm private jobs up 130K with the unemployment rate unchanged at 8.1%. A betting person would bet that the actual data will be different than the estimates, nevertheless markets have to have something to hang on. Today, as has been the case for the past seven sessions the bond and mortgage markets are not likely to change much. The 10 yr note yield over the past 7 sessions has been tied between 1.65% and 1.61%; 30 yr MBS prices also in a narrow range of 59 bp (19/32). No matter the Fed is going to buy $40B a month of MBSs through the end of time (no total amount set by the Fed), the treasury market will still lead interest rates higher or lower. This morning the 120 yr is sitting on its high yield over the last seven sessions at 1.65%, a break out of the range over the last 7 sessions is likely to move yields either higher or lower pending which way the break occurs, probably on tomorrow’s Sept employment report. Regardless of the direction we don’t expect interest rates will change much.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 8:15 the ADP said non-farm jobs increased 162K, estimates were for 140K. The 162,000 increase in employment followed a revised 189,000 jump in August which was originally reported at +201K. Over the two years ended August, ADP’s initial release has understated or overstated the Labor Department’s initial private payroll figure by an average of 66,000. Goods-producing industries, which include manufacturers and construction companies, increased workers by 18,000. Construction employment rose by 10,000, while factories employment climbed 4,000. Service providers added 144,000 workers. Companies employing more than 499 workers increased payrolls by 17,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 64,000, and small companies added 81,000, ADP said. The reaction to report was not much in the bond and mortgage markets but stock index futures gained a little from levels prior to the release. Although better than expected, ADP takes a back seat to the BLS employment data that will come on Friday. Estimates for the BLS data; non-farm job growth 115K, non-farm private jobs +130K with the unemployment rate unchanged from last month at 8.0%; (the unemployment rate is actually higher, probably close to 10% if those that have stopped looking for a job were included). At 9:30 the DJIA opened +15, NASDAQ +9, S&P +3. The 10 yr note at 1.63% +1 bp with 30 yr MBS price -5 bp after being up 5 bp earlier. At 10:00 Sept ISM services sector index expected at 53.0 frm 53.7 in August, the index increased to 55.1 the highest reading since last March; new orders component increased to 57.7 but the employment component fell to 53.1 frm 53.8 (0ver 50 is considered expansion. There was little reaction to better report in the bond market, mortgage market or the stock market with the employment report on Friday, markets are likely to sit quietly until then. Services industries from Asia to Europe cooled last month after the euro-area debt crisis pulled economies including Spain and Italy into recession and damped global growth prospects. The purchasing managers’ index fell to 53.7 in September from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said today. That’s the lowest since at least March 2011. In the euro-area, a gauge slipped to 46.1 last month from 47.2 and a U.K. measure also fell. In Germany, the region’s largest economy, France and Italy, the services indicators were all below 50 last month. The gauge for Spain dropped to 40.2 from 44. Readings below 50 indicate contraction, similar to the ISM data. Europe is now back in recession. Early this morning the weekly MBA mortgage applications data; overall apps increased 16.6% frm the previous week. Refinance apps exploded up 20.0% while purchase apps +4.0%. Low mortgage rates driving apps. Rates across products are all at record lows with 30-year conforming mortgages ($417,500 or less) down 10 basis points in the week to 3.53%. Signs of a turnaround in the real estate market are contributing to consumer optimism. Home prices in the second quarter rose by 2.2% from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data released last week. There is a law on the books that requires businesses to issue potential lay-off notices to employees 60 days before they are laid off. The law, designed to remove the shock of layoffs. Now with the election coming the Office of Management and Budget has asked Lockheed not to issue the notice to lay off 123K employees due to mandated defense cuts that were mandated by Congress. Lockheed says it may have to lay off that many due to cuts. If the company doesn’t issue the notices 60 days prior it will have to wait, which will cost the company huge amounts of money to wait another month. Well, the Office of Management and Budget is telling Lockheed it will repay the company if it holds off.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: Europe’s stock markets better, the US stocks early this morning pointing to a better 9:30 open. Treasuries and mortgage prices generally unchanged from Friday’s closes. The calendar of data this week is full of key data with Sept employment report hitting on Friday. The minutes from the Sept 13th FOMC meeting will be released on Wednesday; they should be interesting as it was at the meeting the Fed decided to buy MBSs each month with no limit. The Fed is still pushing on that string, but any help keeping mortgage rates low is welcome. This morning on CNBC Chicago President Evans, one Fed official who wants the Fed to continue to ease, trying to justify why the Fed should continue to ease….possibly QE Infinity? The Fed wants to drive investors to stocks by keeping rates so low that eventually investors will be forced to equities. The thinking being that the economy will improve if stocks increase is difficult to understand. Spanish government bonds rose for a third day after stress tests of the country’s banking system showed a smaller deficit than earlier estimated, spurring optimism the region’s debt crisis is being contained. the Spanish banking system will need a recapitalization amounting to 59.3B euros ($76.6B). Spain’s securities pared last week’s declines after Moody’s Investors Service said the recapitalization of the nation’s banks was positive for its credit rating. Italy’s 10-year yields dropped to the lowest in a week after an industry report showed manufacturing output shrank at a slower pace in September. German bonds declined as demand for safer assets waned. The European Central Bank meets to review monetary policy this week. The unemployment rate in the euro area reached the highest on record (11.4%) as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Oil is up for a third day in New York as stress-test results bolstered confidence in the Spanish banking system, buoying optimism that Europe’s debt crisis can be contained. With the Fed committed to buy $40B a month of MBSs until the end of time inflation concerns are being debated. We don’t see any inflation on the e horizon and markets are not worrying but Bill Gross at PIMCO isn’t seeing it that way. He believes that the Fed’s flooding markets with constant money printing will set of inflation fears as the US dollar weakens. With more dollars out there the value of those dollars declines and usually increases inflation concerns, but the US and global economies are s weak inflation isn’t likely to be an issue for the dollar and the bond market for at least a couple of years. At 9:30 the DJIA opened +32, NASDAQ +13, S&P +4. 10 yr note at 1.63% unchanged while 30 yr MBS price up 26 bp after starting unchanged this morning. At 10:00, Sept ISM manufacturing index expected at 49.7, it climbed back over 50 for the first time in three months to 51.5. The initial reaction sent the DJIA up 138 points on the day. With the backdrop from Charles Evans (Chicago Fed) this morning on CNBC saying the Fed will stay in the game of easing for much longer than most think now, the 10 yr note and MBS prices initially didn’t give up on the stronger manufacturing report even with stock indexes rallying strongly, but by 10:10 the 10 yield increased by 2 bp to 1.65% but MBSs continued to hold earlier gains. August construction spending also out at 10:00 was expected +0.4% but declined 0.6%. Ben Bernanke is in town today, (Indianapolis) speaking at 12:30. Likely more of the same from is speech but we will listen closely for anything new but that isn’t likely.