Mortgage Rates

Mortgage Rates Happy New Years! Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgage markets starting strong this morning as traders seek safety against the potential failure to come to any agreement on the Cliff discussions. Yesterday Sen. majority leader Harry Reidsaid he didn’t think a deal would get done before the first of the year; the stock market took a huge hit with the DJIA down 150 points, then in the afternoon Republicans announced a special session of the House on Sunday evening. After the announcement the stock market recovered and interest rates came well off their best levels. This morning the fear factor is back; the 10 yrat 9:00 at 1.70% -3 bp with 30 yr MBSs +14 bp. Pre-opening trade in the stock indexes had the DJIA down 60 points. President Obama has called a meeting this afternoon at the White House to discuss the pending failure to deal with the Cliff. If there is a deal worked out it won’t be a wide-ranging one that deals with spending cuts or entitlement reforms. The headline will likely be that taxes won’t increase next year. If a deal isn’t accomplished there is still no reason to believe taxes will increase. Neither party, at the core, wants taxes to increase except for those high income people. Both parties have to understand the implications of driving the economy back into recession. In Jan. when Congress returns those tax increases will be retroactively dismissed. The issues of entitlements, the debt ceiling, and spending cuts will occupy legislators in Jan. but we don’t believe there will be much progress until the new Congress is installed, even then it will drag on for months. 2013 isn’t going to be easy for investors or markets. From the bond and mortgage markets’ perspective the next three days will likely be volatile. Normally on New Year’s eve there is nothing to grab much attention but this year is going to be different with the continual negotiations on the Cliff. Monday the stock market will traded all day while the bond and mortgage markets are set to close early at 2:00. At 9:30 the DJIA -73, NASDAQ -19, S&P -8. 10 yr note 1.70% -3 bp, 30yr mortgage price +11 bp. 9:45 the Dec Chicago purchasing mgrs. index was expected at 51.0 frm50.4, it increased to 51.6, the best level since last August, but the employment index at 45.9 was the lowest since Nov 2009. The decline in employment is due to the storm Sandy that hit the NE in Oct. No reaction to the data; economic reports are less significant at the moment with the Cliffhanging over markets. At 10:00 Nov pending home sales from NAR, expected+1.8%, was +1.7%; yr/yr +8.9%. Pending home sales are contracts signed but not yet closed. The potential of high volatility today with talks and comments coming from Washington. We had it yesterday with Reid and Boehner.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A little softness in the bond and mortgage markets to start the day; stock indexes slightly better at 8:30. Weekly jobless claims at 8:30 down 12K to 350K, estimates were for an increase of 4K to 365K. The 4 wk average at 356,750 down 11K. A better report but it didn’t get any reaction in the markets. The economic data is backward looking, normally traders and investors see the data as indications of future outlooks; these days the various data points are pushed to the back with the fiscal Cliff the only thing out there that is important to markets. In this case with claims, the holidays have likely distorted the data. Claims from 19 states were just estimates with government offices closed on 12/24 the prevented a more accurate report. At 9:30 the DJIA opened NASDAQ -4, S&P -1. 10 yr note at 1.76% +0.5%; 30 yr MBSs -14 bp. Two reports at 10:00; Nov new home sales were expected up 1.8%, were up 4.4% to annual pace of 377K units the most since April 2010. Oct sales were revised from 368K units to 361K accounting for the large percentage increase from month to month. The forecast called for Nov sales at 380K. Yet another housing stat that adds to belief the housing sector is well on the way to recovery. The Dec consumer confidence index wasn’t so rosy; the index was expected at 70.0 frm 73.7 in Nov; the index fell to 65.1 frm a revised 71.5 in Nov. Consumers listening to the squabbles from Washington losing confidence that the political system is broken. The President and most Congress people are filtering back to Washington to work on a plan to avoid the Cliff. Given the short time before the year ends markets are now generally expecting we will go over it, however some relaxation is evident now that it appears inevitable our politicians can’t find common ground. Markets are sitting quietly; no panic in either the bond or equity markets. Going over the Cliff theoretically will cause those that actually pay income taxes a substantial increase; but Congress and the Administration still have time to pass a temporary extension of the Bush tax cuts before new withholding tax tables are printed. Or, Congress could retroactively repeal any tax increases. It is very unlikely that most Americans will see higher taxes next year. Most of those that are returning are leaders in the debate. The leaders have indicated they will give members 48 hours to return assuming there is something to vote on. Next Monday Treasury will reach its debt ceiling once again; Geithner is working a plan for emergency spending that would keep the government going through February or into March. Nothing new about it, this is how it starts. Treasury runs out of money, an emergency plan is worked out pushing the inevitable down the road, then a lot of debate before the debt ceiling is increased. Obama wants Congress to give him total control over the debt ceiling; he has almost no chance to achieve that rather audacious demand. 2013 is going to be a year of constant turmoil n Washington; the fiscal cliff, spending cuts, entitlement reforms, debt ceiling, and possibly an actual budget that we haven’t had for four years. So far this morning the MBS market has shown increased volatility. At 9:30 30 yr FNMA MBSs -14 bp, at 9:45 unchanged. Treasuries are generally unchanged as are the stock indexes. 30 yr 3.0 FNMA still trading under its 20 and 40 day averages; the 10 yr note also still above its 20 and 40 day averages on the yield. The 10 yr 20 day at 1.72%, the 40 day at 1.70%. Overall there has been little movement in the bond market over the last week.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages were essentially unchanged on Monday. This morning about the same, at 9:00 the 10 yr note unchanged and 30 yr MBSs +3 bp. Stock indexes a little better early and prior to the 9:30 open. The lights in Washington still off after failure to come to any agreement on the Cliff. President Obama will return to Washington tomorrow and Congress will be back There is still some optimism that the two warring parties will get something done; if so it will be a deal that fails to address spending cuts or deficit reduction. About the best that can be expected now is a plan to avoid tax increases for most citizens. The most recent data on holiday shopping isn’t good. Sales were expected to increase 3.0% frm last year, according to Master Card sales increased just 0.7%. It was the slowest growth in sales since 2008 when sales fell 5.5%; since then holiday sales have increased each year. Mostly it was the fiscal mess and Washington’s ineptness in coming to grips with it. The tropical storm Sandy gets some blame but consumers’ fears of higher taxes in January is the prime reason for the slowdown. The S&P/Case-Shiller index of property values in 20 cities increased 4.3% from October 2011, the biggest 12-month advance since May 2010. Estimates were for an increase of 4.0%. Home prices adjusted for seasonal variations rose 0.7% in October from the prior month, with 17 of 20 cities showing gains. Las Vegas showed the biggest gain with a 2.4% advance, followed by San Diego with a 1.7% increase. Property values dropped the most in Chicago, which fell 0.7% over the month. At 9:30 the DJIA opened +20, MASDAQ unchanged, S&P +2. The 10 yr at 9:30, after starting a little weak, up 3 bp to 1.77% -1 bp; 30 yr MBSs +6 bp. With nothing but the fiscal Cliff on minds, the markets should be relatively quiet through the day. Washington won’t get make to “business” until tomorrow and with the bad weather hitting most of the mid-section of the country some of the legislators may not make it on time. The best outcome now is for an agreement to keep tax increases from increasing on middle America. Nothing will be done on spending cuts or deficit reduction, not to mention reforms of entitlement programs. Kick the can down the road is what we can expect from Washington. A blizzard warning stretches from northeastern Arkansas to Cleveland, Ohio, where almost 14 inches of snow is expected to fall by tomorrow, according to the National Weather Service. Winter storm warnings are in effect from Illinois into Maine. Here in Indy we are going to get 12” by late this evening. Over the last six trading sessions the 10 yr has stayed in a 8 bp range. 30 yr MBSs about unchanged. Technically still slightly bearish but with the Fed supporting rate markets we don’t expect rates will increase much from present levels. IF the economy were to go over the Cliff next week the bond and mortgage markets should improve with the stock market falling on disappointment. Until there is something concrete from Washington traders will continue to keep a minor bid in the bond and mortgage markets. In the equity markets, based on how the indexes have been trading, there is still optimism that the Cliff will be avoided.

Mortgage Rates

Mortgage Rates, Merry Christmas Eve! Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com 2 This Week; actually the week starts on Wednesday although Monday markets will be open in shortened trading. (Stocks close at 1:00, bonds close at 2:00). Many global markets are closed but here in the US for reasons unknown to mankind our markets are open; nothing new however, it’s been this was for decades. This week has two housing data, Nov new home sales on Thursday and Nov pending home sales on Friday. The only thing of importance this week is the Cliff; Congress is due back on Thursday the Administration is in Hawaii. Based on comments there is no plan that both parties will agree on. There is an increase in the view that we will go over the Cliff. Going over it has been built up to a serious fear factor within markets, but now with the Cliff moving closer many are thinking going over won’t be that serious. Of course that is based on the further view that there will be a deal to keep taxes from increasing before the IRS can issue new withholding tables.

Mortgage Rates

Forwarded exclusively by: Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com As far as civilization is concerned the Mayans appear to be wrong; we are still here. As far as the fiscal Cliff is concerned the Mayans may have got it right. Last night the Republican controlled House couldn’t even get enough Republicans to pass the Boehner Plan B that would have increased taxes on those making over a million a year. The Tea Party reigns. The Plan B was supposed to move Republicans closer to Boehner’s original proposal to the President on revenue increase and spending cuts. Even after House Majority Leader Eric Cantor said yesterday that the measure had sufficient support, last night the bill was pulled as there wasn’t enough votes to pass it. Even had the bill passed it would have died a quick death in the Senate; but it is a blow to Republicans and possibly will take the country over the Cliff. Now there won’t be any votes on anything until after Christmas. Until now the Senate was supposed to end today and not re-convene until next Thursday; whether the turn of events will keep legislators at work will be an issue. The clock is ticking down, unless there is a big change in sentiment on both sides falling over the Cliff, at least at this moment looks likely. At 10:00 this morning Boehner is scheduled to make a statement. Can the President and Republicans come together? Based on the number of republicans that would not vote for Plan B it is going to take a number of Democrats in the House to join with Republicans to agree on something that is likely to be closer to what the President is seeking. The reaction to last night’s failure is hitting US and European stocks hard this morning and improving US interest rate markets. At 9:00 the DJIA was down 182 points; the 10 yr note yield at 1.76% down 4 bp, 30 yr MBS prices up 18 bp frm yesterday’s close. New factory orders for durables in November rose 0.7% in November, following a 1.1% gain in October. Analysts expected a 0.5% gain. Excluding transportation, orders increased 1.6%, following a boost of 1.9% in October. Market expectations were for a 0.2% rise in orders excluding transportation. Obviously a much better outcome than forecasts, but it is a Nov report. It was ignored in the markets, as is most economic data these days with the Cliff fiasco dominating everything these days. Nov personal income was expected to be up 0.3%, as reported income increased 0.6%. Personal spending in Nov was expected +0.4%, as reported it was right on at +0.4%. Income got some lift in November as businesses in the Northeast re-opened and employees returned to work after Sandy. The two 8:30 reports on durables and personal income would under normal circumstances been met with enthusiasm in the stock market and likely bothered the bond market. These however are not normal times; it is all about the Cliff, economic data is filed away for later after there is something from Washington. Given the circumstances in Dec personal spending and durable goods orders will likely slow. The DJIA opened -63 at 9:30, NASDAQ -53 and S&P -10. The 10 yr note at 9:30 1.74% -6 bp; 30 yr MBS price +25 bp. Within five minute after the open the DJIA traded down 140 points. At 9:55 the final Dec U. of Michigan consumer sentiment index, expected at 75 frm 74.5, the index fell to 72.9. At the end of Nov the index was at 82.7. It is a volatile index but still disappointing. The 10 yr held support at 1.85% on Tuesday, since then a little improvement in the bond and mortgage markets. This morning the 10 yr is back below its 200 day average on the yield but is still bearish I our opinion. There is the potential for more improvement as the fiscal Cliff looms and since the Plan B couldn’t muster enough votes last night there is an increase in the view that we may actually go over it. Not a certain thing however, there are a few more days to pull the mess out of the fire. If that were to occur the bond and mortgage markets will be pressured again. Take advantage of this rally; it’s all about the Cliff as to how low interest rates will decline.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Started better this morning in the bond and mortgage markets after he 10 yr note yield increased to 1.85% two days ago where strong support resides. At 8:30 the 10 yr note traded at 1.78% down 3 bp with 30 yr FNMA MBS +12 bp. Weekly jobless claims at 8:30 were expected to be up 16K, as reported claims were right on, +17K to 361K. The four-week moving average of claims declined to 367,750, the lowest since the end of October, from 381,500 last week. Continuing claims rose by 12,000 to 3.23 million in the week ended Dec. 8. The continuing claims figure does not include the number of workers 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 94,000 to 2.14 million in the week ended Dec. 1, the last data available. Q3 final GDP was expected to be unchanged from the preliminary report last month at +2.7%. Growth in the quarter increased more than thought, at +3.1%, a rather surprising increase. According to the Commerce Dept. the increase was due to increased consumer spending and a smaller trade deficit. There was little reaction to the better growth in the quarter, in a few days the fourth quarter will be complete; it is highly unlikely Q4 will come close to the growth in Q3. Slowing growth globally and companies reducing their spending and hiring in the quarter caused by fiscal Cliff concerns may reduce GDP growth in half frm Q3. At 9:30 the DJIA opened +5, NASDAQ +5, S&P +1. The 10 yr note at 9:30 +5/32 at 1.79% -2 bp; 30 yr MBS price +9 bp. Republicans in Congress will vote today on Boehner’s plan to raise taxes on incomes over $1 million. The proposal is aimed at preventing more than $600B of automatic tax increases and spending cuts from coming into effect next year. White House officials told a group of industry representatives that Obama’s budget talks with Boehner have deteriorated. The vote is all about posturing; it may pass the House but that is as far as it will get. Viewed on a day-to-day basis, today it looks bleak for a deal to avoid the Cliff. Tomorrow is another day, and there is still next week. For all the conjecturing and opinions, whether we avoid the Cliff is still highly uncertain regardless of who is talking in Congress or the Administration. Four economic reports at 10:00. Nov existing home sales were thought to be up 2.3% to 4.90 mil annualized units; sales increased 5.9% to 5.04 mil units. Yr/yr sales of existing home sales +14.5%, the 5.04 mil nits is the largest since Nov 2009 which was due to the home owners tax credit. Take that month out and sales are at highs not seen since 2007. There is now just a 4.8 month supply based on present sales. The Dec Philadelphia Fed business index was expected at -2.0, as reported the index increased to +8.1, the best since last April. Nov leading economic indicators was expected -0.2%, as reported it was spot n at -0.2%. Finally, the Oct FHFA house price index was expected +0.3%, the price index increased 0.5%. Technically, we noted two days ago that 1.85% on the 10 yr note was strong support; so far it has held as expected. Rates should improve more but we don’t expect much of an improvement. Suggest using any improvements to lock in rates.

Mortgage Rates

Morgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The day started with stock indexes better and interest rates unchanged from yesterday’s selling. All global stock markets are better today with the belief that the US will avoid going over the Cliff in 12 days. Negations are still rather fragile, at least based on the rhetoric coming from both sides; nevertheless based on how markets are reacting here and around the world there will be a deal before the end of the year. At 9:00 the 10 yr note traded unchanged while mortgage prices were slightly better than the close yesterday. In late trading yesterday MBS prices did improve from levels we marked at 4:00. So far today there isn’t anything out of Washington on the Cliff negotiations. Nov housing starts at 8:30 were down 3.0%, building permits +3.6% both about in line with forecasts. Starts fell to 861K annual units frm revised 888K in Oct, originally 894K. The average rate of housing starts from September through November was the strongest since the three months ended August 2008. Permits increased to 899K units. Construction of single-family houses fell 4.1% to a 565,000 rate. Yesterday the Dec NAHB housing index increased for the 8th straight month. Mortgage applications decreased 12.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 14, 2012. The Refinance Index decreased 14% from the previous week to the lowest level since week ending November 2, 2012. The seasonally adjusted Purchase Index decreased 5% from one week earlier. The refinance share of mortgage activity decreased to 83% of total applications from 84% the previous week. The HARP share of refinance applications fell to 25%. The adjustable-rate mortgage (ARM) share of activity increased to 3% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.50% from 3.47%, with points increasing to 0.44 from 0.36 (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 3.73%, the lowest rate in the history of the survey, from 3.77%, with points decreasing to 0.29 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.34% from 3.32%, with points increasing to 0.54 from 0.51 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.83%, the lowest rate in the history of the survey, from 2.85%, with points remaining unchanged at 0.26 (including the origination fee) for 80% loans. Investors continue to move into more risky investments and away from safety of treasuries. The same can be seen in Europe; today’s stronger than expected German Ifo Business Climate survey (102.4 actual v. 101.9 expected) is the latest spark for the ongoing flight into risk assets, causing investors to shed safer ones. This afternoon at 1:00 Treasury will auction $21B of 7 yr notes; yesterday’s 5 yr and Mondays 2 yr auctions didn’t see strong bidding. At 9:30 the DJIA opened -2, NASDAQ +5, S&P +1. The 10 yr note +4/32 at 1.81% -1 bp; 30 yr MBSs +15 bp, FHAs -17 bp. Yesterday the 10 yr note increased to 1.85% where there is very solid support. The 10 yr note has traded over 1.85% for one day since last May (9/14/12). Although the 10 yr yield is presently over its 200 day average at 1.76%, 1.85% has successfully held on five occasions. The momentum oscillators on the note are signaling an oversold market. We expect some improvement at these levels but we do not expect interest rates will decline in an substantial way. Take advantage of price improvements in the mortgage markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Stock indexes prior to the 9:30 open were a little better, the 10 yr note yield at 1.72% +1 bp, 30 yr MBSs +5 bp. At 8:30 the Dec Empire State manufacturing index was expected at 0.0, it fell to -8.10 frm -5.2 in Nov. The report showed no effect from Hurricane Sandy or the aftermath. The report for December is filled with negatives that include contraction for new orders, unfilled orders, and employment. The 12-month outlook is still positive but is far from robust. There was no noticeable reaction to the weak report. The Cliff is getting closer; over the weekend Republicans agreed to increase taxes on millionaires. So far no comments from the Administration, a fig leaf but with Obama insistent on taxing those that make $250K it’s a big step down to millionaires. Obama rejected a Dec. 14 offer by Boehner to raise rates on household income above $1 million a year and lift the federal debt ceiling in exchange for containing entitlement program costs. With the Cliff now two weeks away and little to no progress, some now saying Republicans may accept going over it. The thought is it would give Obama some cover on his pledge of increasing taxes for high income earners. $600B of spending cuts would be triggered if we go over the Cliff. Obama also wants total control over extending the debt ceiling while Republicans say any increase in the debt must be accompanied by cuts in spending greater than the amount of any increase in the debt ceiling. The federal debt limit is expected to reach its limit in February. So far markets are not taking going over seriously; stock indexes holding and interest rates slightly higher over the last week. This afternoon Treasury will auction $35B of 2 yr notes, the first of three consecutive auctions this week. Tomorrow $35B of 5s and Wednesday $21B of 7s. At 9:30 the DJIA opened +31, NASDAQ +6, S&P +4. The 10 yr at 9:30 -3/32 at 1.72% +1 bp; 30 yr MBS +5 bp. Nothing on the calendar the rest of the day. Markets will be on alert for any comments on the Cliff talks. As noted above as the end of the year approaches there is chatter that politicians may let the country go over the Cliff. A game of chicken played out by Republicans now thinking people may put increasing lames on the Administration when all taxes will increase because a deal could not be worked out. It is however a quickly moving target. That rate and equity markets are rather subdued is curious given the implications of Cliff consequences. Unless there is an agreement the Congressional Budget Office is saying it may lead to a recession in the first half of 2013; something we believe neither political party wants to see.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning (7:00 am) the 10 yr note was unchanged, but as the sun rose the 10 managed to improve. At 9:00 the 10 yr +5/32 at 1.71% -2 bp and 30 yr MBSs +6 bp. At 8:30 Nov CPI declined 0.3%, a little weaker than -0.2% expected; the core (ex food and energy) +0.1%, also weaker than +0.2% markets were expecting. The last of this week’s data at 9:15; Nov. industrial production was thought to be up 0.3%, as reported it increased 1.1%, Oct was revised frm -0.4% to -0.7%. Nov factory usages was forecast to have increased to 78.0%, it jumped to 78.4%. There was no immediate reaction to the better manufacturing data in the stock indexes that were about unchanged prior to data this morning. The increase in production increased the most in two years as manufacturers rebounded from Sandy. In China, the December preliminary reading was 50.9 for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics, beating estimates. Late yesterday afternoon Pres. Obama and House speaker Boehner met at the White House for the third time. After the meeting which lasted about an hour, both of their spokespeople said the same thing; it was a “frank” meeting. Pundits saying it indicates that nothing was moved forward. It continues to be a game of chicken, positioning for the best possible face. Although the ink isn’t dry on the election results last month; both parties are already posturing for the 2014 elections. If there is a deal before the country plunges off the Cliff, it won’t satisfy anyone. If there is a deal it won’t happen before Christmas given the intransigence frm both sides. A slightly better start this morning for treasuries and MBS markets; after increasing yields over the last four days the 10 yr is doing better so far. The softer inflation reading on Nov CPI supporting treasuries but mostly just traders squaring positions after the swift decline in prices. The FOMC policy statement and the change in how long the Fed will keep rates low (until unemployment falls to 6.5%) and the Fed’s increase in its inflation threshold frm 2.0% to 2.5% rocked fixed income markets. The Fed’s changes will put a higher floor for rallies; adding additional belief that interest rates will struggle to decline to levels seen last summer as some are touting.

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets opened weaker this morning with US stock indexes following all of Europe’s key markets higher. Last Friday the 10 yr note moved to 1.60%, the key resistance, it held and this morning n early activity the 10 down 7/32 (21 bp) at 1.64%. 30 yr MBSs at 9:00 down 21 bp. This week is employment week and the two ISM indexes (manufacturing and services). Normally traders would direct most attention to the reports but this isn’t a normal situation; the overriding concern for markets is the fiscal Cliff that is likely to dominate through most of Dec. It is not likely the two parties will agree on anything until the final hour. Neither party can afford to disappoint their core bases and will debate the issue right to the end. Will the country go over the Cliff? It is all that is being talked about; there isn’t any true consensus about the outcome. This morning after the weekend news talk shows it appears the negotiations are going now where. It is early in the game though and no one should form any hard opinion on the outcome. Going over the Cliff has markets believing the economy will fall back into recession as tax hikes kick in. Given the present hard stance from the Administration that what has been laid out is not subject to debate, the atmosphere today is contentious. In the end we expect Congress and the Administration will agree to a temporary fix by extending the Bush tax cuts and the payroll tax cut into 2013 for a few months; we don’t see a grand compromise this month. Helping the equity markets early this morning, China’s manufacturing index was the highest in seven months. At 9:00 the 10 yr note at 1.65%, 30 yr MBS price -28 bp frm Friday’s close. At 9:30 the DJIA opened +47, NASDAQ +19, S&P +6; 10 yr note 1.65% +3 bp, 30 yr MBS prices -21 bp. Two reports out at 10:00; Nov ISM manufacturing index was expected at 51.2, down frm 51.7 in Oct. The index dropped to 49.5, the lowest level since July 2009 and under 50 indicating contraction. On the release the stock indexes gave up all the early gains. The 10 yr note yield improved by 1 bp to 1.64% and MBS prices improved frm the 9:30 levels. Oct construction spending, pushed into the background by the ISM index increased 1.4% much stronger than the 0.4% expected. The rate markets are well grounded at current levels; nothing has provided any reason to move rates higher or lower. Investors mostly not involved with the Cliff and Europe so uncertain. At these low levels of rates it will require a major shock to push interest rates lower. The wider belief within the capital markets is that long term US rates are more likely to increase than fall. We are hearing people like Mohammad El Arian saying 2.00% for the 10 yr note, but is does depend on how Washington deals with the Cliff crisis.