Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A tough day for the MBS market yesterday; at one point at mid-afternoon the 30 yr MBS price was down 34 bp frm 9:30. Mortgage markets opened strong but lost ground rapidly when the stock market moved higher to close +175 on the DJIA; in two sessions the DJIA gained 291 points and more than recovered the decline on Tuesday on news Italy’s elections didn’t get a coalition adding new fears of EU troubles and less growth. Yesterday the 10 yr yield increased just 1 bp as treasuries held well in the face of the strong equity markets. The DJIA ended yesterday just 89 points from its all-time high (14,164). In testimony yesterday Bernanke said the Fed was discussing various plans about how it will eventually end the QE, buying $85B a month of MBSs and treasuries. He added with emphasis that presently there is no plan to end the QE as employment is still weak and the economy tenuous but improving. Bernanke assured markets the QEs will continue for a lot longer; most analysts are forecasting any reduction of the QEs won’t start until well into 2014. Bernanke made it abundantly clear yesterday that when the Fed is ready to back away there will ample warning signs for markets well ahead of actual reductions. His commitment of forward transparency relaxed markets; so far no signals being telegraphed and with assurance there will be plenty of time to act ahead of any cuts in buying, the equity markets charged ahead. This morning at 8:30 weekly jobless claims were expected to have declined 2K, as reported claims fell 22K to 344K. The 340K level seems the new benchmark for claims after hovering at the 370K level in 2012, recent claims have been edging lower in the last few months. Q4 GDP preliminary report was expected to show growth of 0.5% in the quarter; the advance report last month was a decline of 0.1%. Commerce said this morning GDP increased 0.1% well below what markets were expecting. Not much reaction to either 8:30 reports; although Q4 was weak the consensus is that Q1 2013 will grow at about a 0.7% rate with estimates as high as +1.3%. The automatic spending cuts known as sequester will begin tomorrow. Cuts across the board are mandated by a bill passed in August 2011 and signed by the president. The cuts mandated were so draconian that neither Republicans or Democrats expected they would actually happen. More brinksmanship from both sides assures the cuts will start, the President is all over the country whipping up support that would drive Republicans to capitulate. Republicans holding firm, betting the cuts will be blamed on Obama. The Administration will use the sequester to cut spending where it will hurt the most; rather than cutting fat the cuts will be designed to inflict pain where it has the most impact on citizens. It won’t be shock and awe though; implementing the cuts will take months before the full impact would be felt, meantime we expect Congress and the White House will come to an agreement that will not send the economy back into decline. Markets believe it; if not the stock indexes would be falling instead of running to new all-time highs. At 9:30 the DJIA opened -6, NASDAQ +1 and S&P unch; the 10 yr note yield at 1.90% unchanged and 30 yr MBSs +12 bp. 9:45 the Feb Chicago purchasing mgrs. index, expected at 55.0 frm 55.6. The index increased to 56.8 the highest the index has been in 11 months. The new orders component also increased from last month, to 60.2 up 2, the employment index however did decline from 58 in Jan to 55.7. Any reading over 50 is considered expansion, the higher the better. After the strong rally in rate markets on Monday we noted there would be an increase in volatility in the bond and mortgage markets. Since Monday the interday volatility has increased substantially compared to trading over the previous five weeks. Yesterday 30 yr MBSs opened better right on the key resistance level at 103.62, unable to break through the price fell through the rest of the day to close at 103.38. The 10 also failed to move below 1.85% and increased to 1.90%. The wider outlook is still constructive, however the DJIA is not likely to fall back until at least it makes a new all-time high, just 89 points higher than yesterday’s close. We stand on our outlook that interest rates are not likely to fall much frm recent high yields unless there is a severe change in sentiment on the future of the economic outlook.

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

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

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the 10 yr note traded down 1 bp at 1.99% frm yesterday’s close. At 8:30 better news on the Empire State manufacturing index; the index surprisingly jumped to +10 frm -7.8 in Jan with forecasts of -0.2 expected. There was not much movement in either the stock indexes or treasuries but the better read did take something away frm the rate markets. The index is the highest since May 2012; gains in orders, sales and employment during the month show manufacturing is starting to recover from a slowdown in the second half of 2012 after companies brought inventories more in line with demand. US stock indexes came off their lows but still were negative at 9:00; all European stocks rallied on the US report. Two more reports at 9:15; Jan industrial production expected to have increased 0.3% and factory usage was expected at 78.9% frm 78.8% in Dec. Production reported down 0.1%, less than thought; factory usage at 79.1% with Dec revised from 78.8% to 79.3%. The reaction to the mixed data did add a little to stock indexes and pushed the 10 yr note back above 2.00% to 2.01%. Industrial production lower but nothing significant after the biggest back-to-back gains in the last 30 years; revised data for Dec and Nov showed the largest gains since Feb. 1984. The manufacturing report, part of the industrial production data, and accounts for 12% of the economy declined 0.4$ after Dec was up 1.1% and Nov +1.7%. Gold has lost a lot of its luster recently and is down dramatically this morning as gold bugs are throwing in the towel on gold forecasts of $2,000+ per ounce that once was a “given” are now history. You know it’s over when spam mail floods your e-mail touting gold as a good buy. Pump and dump. At 9:00 the 10 yr unchanged at 2.00%, 30 yr MBSs lower, down 9 bp (GNMAs -34). At 9:30 the DJIA opened +8, NASDAQ +4, S&P +1; 10 yr note 2.01% +1 bp, 30 yr MBS price -9 bp on conventionals while FHA price down 31 bp. At 9:55 the U. of Michigan consumer sentiment index was expected at 75.0 frm 73.8; the index rocketed to 76.3 the highest since last Oct and Nov when the index was over 80. Another better data point this morning adding to the strength in the stock market. No much but the 10 yr increased to 2.02% on the report and MBS prices fell 6 more bp frm the 9:30 levels. Interest rates are well contained in a 10 bp range on the 10 yr, mortgage interest rates in an even narrower 5 bp range on rates; there is no urgency to sell bonds and equally no reason so far to buy the note. As long as the stock indexes hold interest rates have little to suggest rates will decline. There is still a lot of belief that the stock market will enter into a correction, so far that has not occurred. It is now reasonable to assume the key S&P 500 index will continue to increase and achieve a new all-time high over 1565. Although rates are technically bearish and stock indexes technically bullish, both markets are locked into little tight ranges. The 1st of March is closing in quickly with the automatic spending cuts due to engage; Dems in the Senate want a 10 month extension to the sequester, offering some spending cuts but want tax increases also. Republicans in the House are resisting any tax increases. Markets though appear to be taking it all in stride so far; stock indexes holding and no run to safe treasuries as the days fall off.

Mortgage Rates

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

Mortgage Rates

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

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 fractionally better, the 10 yr note yield as a result started a little higher with early MBS trade about unchanged. Again today, no key economic reports; the main focus today will be this evening’s State of the Union address. What will he say, how will he phrase his growth plans, how will he confront the increasing deficit, what will he say to counter the Republican demands that no taxes be increased? The Republican response will be delivered by Sen. Marc Rubio. A lot of questions that will dominate thinking through the day; by the end of the day today we expect interest rates and the stock market to be close to unchanged. At 9:30 the DJIA opened +10, NASDAQ -1, S&P +1; 30 yr MBS price -9 bp with the 10 yr note yield at 1.99% +3 bp. Fed Vice-Chairwoman Janet Yellen speaking yesterday defended the Fed’s continued easy money policies calling the unemployment rate too high and that it is “entirely appropriate” for the bank to focus on employment. Not surprising, Yellen is considered one of the doves at the FOMC. There is no indication the Fed is preparing to end the QE, purchasing $85B of treasuries and MBSs each month. There is discussion within the FOMC about how, when it is appropriate, the Fed will engineer its withdrawal; not likely this year. According to data from Cantor Fitzgerald total agency MBS production for Jan. was $140.5BB, up $28.1BB (25%) vs. last month. The increase in production was due to low level of production in Dec. as originations pushed up as much of their supply as possible to Nov. to avoid the G-fee hike that started Dec. 1st. 30yr production was $101.9BB, up 23% month-over-month while 15yr production was $25.8BB, up 25% vs. Dec. The Fed is buying $40B of MBSs each month. The National Federation of Independent Business released its optimism index this morning; expected at 89.5 frm 88.0 Dec, was at 88.9. NFIB said “still one of the lowest readings in the survey’s 40 year history”. “All that happened in the “cliff negotiations” was that taxes went up, 2 percent for everyone as the temporary cut in the FICA tax was restored and the marginal rates for the “rich” ($400k and up) were raised. Obama Care taxes and costs were off the table for discussion. There were no real cuts in spending, just the recognition that some spending was slowing as it was programmed to do. The real sequestration cuts were kicked down the road again. The message to the private sector was the same – management incompetence, no leadership. So, “uncertainty” as to the management plan to get USA Inc. back on a sound fiscal track was not resolved. The fourth quarter decline in GDP was not a confidence builder either. Although a lot of the decline was attributable to events not likely to be repeated any time soon (government spending reductions and a sharp reduction in inventory build), growth would still have been about 2 percent without those hits –nothing good happened to offset them. And, the decline in imports is highly correlated with a decline in GDP. Business investment and housing looked OK, consumer spending, especially on non-durables and services was not strong. The Fed continued its liquefaction of assets in the economy, building profits at the big banks but condemning savers and retirees to lousy returns for years to come. It was hard to find good news, globally or nationally.” 11:30 has KC Fed President Esther George speaking at the U. of Nebraska; at 1:00 Dennis Lockhart, Atl. Fed Pres. in Madrid. This afternoon at 1:00 Treasury will auction $32B of 3 yr notes at its quarterly refunding. Tomorrow $24B of 10s and Thursday $16B of 30s. The auctions, particularly tomorrow’s 10 yr note, will put some additional pressure in the treasury market. IN the absence of anything more significant traders will approach the auctions with caution. At 2:00 Treasury is scheduled to report the January budget details; estimates are for the budget short-fall to be just $2B. Over two weeks now that the 10 yr note rate has traded in a 6 bp range based on closes; MBSs also confined in a narrow range. The stock indexes also marking time the last few sessions. Still looking for the elusive correction in stocks, but so far all there has been is no increases, there hasn’t been any sustained selling in the indexes. Market should trade quietly today ahead of the State of the Union at 9:00 this evening. Treasuries and mortgages are still holding bearish technical readings.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 9:30 US tock indexes were trading higher, at 9:30 however the DJIA opened down 18, NASDAQ -1 and S&P -2. The 10 yr note early this morning down 8/32 at 1.98% but the softer open in the stock market the 10 was unchanged. 30 yr MBSs also abut unchanged from Friday’s close. There are no economic reports today. Treasury will auction $72B of notes and bonds beginning Tuesday. The State of the Union is on Tuesday evening. Key economic data hits on Wednesday through Friday. Jan retail sales, weekly claims, Jan industrial production and factory use are the data we will get. The equity markets continue to hold and edge higher, as long as stock indexes continue to resist selling the bond and mortgage markets will remain in a narrow range with little change in interest rates. The 10 yr note has solid support when its yield climbs to the 2.00% area; moving above it on a couple of occasions recently but no follow-through. There has been virtually no change in US interest rates since the end of January. Pres. Obama’s State of the Union address, according to reports, will unleash a number of executive orders and decisions on health care and a number of programs. Congress and the Administration face the March 1st deadline on the sequestration; so far nothing is happening, at least nothing that has captured much attention. Meanwhile according to the WSJ article businesses are becoming increasingly concerned about the strength of the economy going forward in 2013. Q4 2012 advance GDP was -0.1%, however we expect the preliminary report on the 28th of this month will be revised to show some growth. The Fed will continue to buy $85B of MBSs ($40B) and treasuries each month. With the economy still just stumbling along and Obama Care beginning to bite on small businesses; and the debt issues plaguing recovery, we are holding our view that interest rates will not increase much, possibly 2.25% by the end of the year. Meantime, until there is selling in the stock market rates won’t decline. EU finance ministers are meeting today to work out a bailout for Cyprus. The Group of 20 finance ministers are scheduled to meet in Russia starting Friday. Mix in the State of the Union tomorrow evening, Treasury’s $72B of auctions this week and no supportive economic reports; there is no reason today for the stock market to improve or interest rates to change much. The stock market remains overbought and ready to retrace, the obvious question is when. Until the stock market retreats US interest rates are not likely to decline much. Pope Benedict XVI is going to abdicate the papacy. The first time in 600 years a pope has quit. Health reasons are the reason according to the Vatican. Curious though there has been no warning, sickness of substance or any hint to would resign. Not a market mover, but thought provoking for Catholics.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early trade this morning was generally flat in stocks and bonds. This week has seen hardly any movement US financial markets, no solid economic data and not much coming from Washington the sequester debates. The 10 yr note yield has stayed in a 6 bp range (closings) and 30 yr MBSs as of 9:00 this morning down just 18 bp frm last Friday’s close. This morning at 8:30 Dec trade balance was somewhat a surprise, the deficit came in at -$38.5B, much lower than the $-42.5B expected. The narrowing gap was led by record exports of petroleum. The lower deficit in Dec is likely to show up again at the end of Feb when we see the preliminary Q4 GDP revisions; the advance report was a -0.1% growth, with lower deficit the revision will likely show that the economy actually did see growth in Q4. For all of 2012, exports climbed 4.4% to a record $2.2 trillion. Imports advanced 2.7% to $2.74 trillion. That pushed the trade gap last year down to $540.4 billion from $559.9 billion in 2011. Prior to the Dec trade data at 8:30 the stock indexes were unchanged; after the report indexes improved into the 9:30 open. At 9:30 the DJIA opened +24, NASDAQ +12, S&P +4; 10 yr note at 1.97% +1 bp and 30 yr MBS -8 bp. The East coast is headed for a blizzard later today, as much as 3 feet of snow with 60 MPH winds. Airlines are closing, rapid transit in Boston closing at 3:30 today. Not a market mover though, since there isn’t much news there is a lot of talk about it. So far the NY exchanges are saying they will stay open regular hours today. Currency wars continue; a few weeks ago the Japanese prime minister said Japan would make moves to weaken the yen, since then the yen has declined against the dollar frm 78 to 94 yesterday (78 yen per dollar to 94 yen to the dollar). This morning the yen has increased the most in a day in almost two years on comments frm the prime minister that the planned decline for the yen has been too quick. These days currency wars are running at flank speed as every country is trying to weaken their currency to gain advantages for their exports. The Fed is printing money at warp speed, Japan and Europe also deflating their currencies. At 10:00 Dec wholesale inventories were expected to be +0.7% frm +0.3% in Nov; as reported inventories up just 0.1% with final sales unchanged against expectations of sales being up 0.6%. No immediate reaction to the report. Treasuries and MBSs remain in very narrow ranges; the 10 yr has near term resistance at the 1.95% area with its 20 day average increasing every day, today at 1.93%. 30 yr MBSs closed at 103.50 on Jan 25th, this morning at 10:00 at 103.23 -27 bp in over two weeks; essentially unchanged in the period. There is still the view out there that the stock market is overdue for the correction we continue to talk about, so far talk is all there has been. Some pundits calling for a 10% decline in the key indexes; we don’t agree with that much fall. There is so much money resting on the sidelines wanting to get in that 10% doesn’t seem very likely. The other thing we heard yesterday from one of the mortgage market commentators is that the 10 10 yr note will decline to 1.50%, again we don’t agree; when stocks do retreat the beast we can see for the 10 yr is a decline to 1.75%; furthermore if that does occur it will not last long at that level. Be careful of extreme estimates from those whose forecasts are too optimistic. Makes for comforting reading, but unlikely in our view at the moment.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets started quietly this morning with interest rates continuing relatively unchanged over the past two weeks. The stock indexes in pre-opening trade were hardly changed from yesterday’s unchanged levels. 8:30 data didn’t generate much response in either the bond or stock market. Weekly jobless claims were expected to be 6K were down 5K at 371K; last week’s claims revised from 36K to 371K. Unemployment claims still holding at what many see as not much improvement in the labor markets. Claims above 350K seem to be the level that analysts think is the pivot point for improvement. The Labor Dept. said there were no unusual effects in this report and no states were estimated. Recent claims data were considered distorted due to quarterly revisions and weather issues that required Labor to use estimates for some states. The four-week moving average of jobless claims, a less- volatile measure, fell to 350,500, the lowest since March 2008, from 352,750. Q4 productivity was expected down 3.1%, as reported it declined 2.0%, the decline was the most in the last two years. Q3 productivity was +3.2%. When productivity falls unit labor costs increases; Q4 unit labor costs were thought to be up 3.1%, as reported costs increased 4.5%. The decline in productivity may imply employers have run out of methods to keep frm new hires. In Q3 unit labor costs were +2.3%. At 9:00 the DJIA futures were -1; the 10 yr note unchanged at 1.96% while 30 yr MBS prices were -1 bp. All markets flat at 9:00. At 9:30 the DJIA opened -19, NASDAQ -2, S&P -1; 10 yr note 1.97% unchanged while 30 yr MBS prices were unchanged from yesterday’s close. Since the end of January the 10 yr note based in a closing basis has traded in a 6 bp range. The stock market since the end of January hasn’t moved much, the DJIA unable to break above 14K but also able to hold without seeing any significant selling. We still look for a correction in the bond and mortgage markets that will push interest rates down a little, however the longer outlook will remain bearish as long as the economic outlook and the stock markets continue to improve. Most of this month’s attention will be on discussions about the sequestration coming on March 1st. $85B of mandatory spending cuts set up by Pres. Obama back in 2011 to get the debt ceiling increased are going to kick unless the parties can agree on another ‘push the can down the road again’ deal. Much of the automatic cuts will be on defense; even Republicans agree that is a serious cut but so far the party is standing firm on no tax increases that Democrats and Obama want. Investors may sit out buying this month as the debate heats up through the month.

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 a little better this morning with US and Europe stock markets lower. The DJIA appears to be finding it difficult to break and hold above the psychological 14K level; it made it on Monday, sold off Tuesday and then rallied yesterday but didn’t make over 14K. Treasuries and mortgages continue to be tied to how equity markets traded; investors and traders exiting the fixed income markets into equities where returns are better and are expected to continue to improve over the year. There are no economic reports today; this week is skimpy on data. The only data out this morning; weekly mortgage applications. Applications increased 3.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 1, 2013. The Market Composite Index, a measure of mortgage loan application volume, increased 3.4% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 4% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier was at its highest level since the week ending May 7, 2010. The unadjusted Purchase Index increased was 16% higher than the same week one year ago. The refinance share of mortgage activity decreased to 78% of total applications from 79% the previous week and is the lowest refinance share observed since early July 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.73% from 3.67%, with points increasing to 0.43 from 0.42 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for seven of the last eight weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.96% from 3.95%, with points decreasing to 0.38 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.53% from 3.48%, with points increasing to 0.38 from 0.33 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.00% from 2.95%, with points decreasing to 0.33 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.72% from 2.60%, with points decreasing to 0.30 from 0.33 (including the origination fee) for 80% loans. The EU is climbing back into focus after months that the region seemed less a concern to global markets. Political uncertainty is increasing in Italy and Spain over recent reports of bank scandals in Spain and political scandals in Italy. On the more positive outlook in the EU; German factory orders rose in December as euro-area demand jumped, adding to signs that the region may be starting to recover from recession. The 17-nation euro economy is starting to improve after the sovereign debt crisis pushed it into recession last year. Spanish house prices halted a three-year decline in January and euro-area economic confidence rose to a seven-month high. Investors awaiting tomorrow’s ECB meeting also slowing things down in global equities. Pushing stocks higher recently has been stronger than expected earnings in Q4, although Q4 GDP declined 0.1% businesses continued to do well by reducing expenses and resisting hiring new employees. At 9:30 the DJIA opened -61, NASDAQ -11, S&P -6. 10 yr note 1.97% -3 bp and 30 yr MBSs +18 bp frm yesterday’s closes. Treasury this morning announced the details of next week’s quarterly refunding; the total is the same as the last few quarterly refunding. $32B of 3 yr notes next Tuesday, $24B of 10 yr notes next Wednesday and $16B of 20 yr bonds next Thursday. Nothing unusual about it. The remainder of the session will be directed on how the stock market performs. US 10 yr note rate has been well-contained between 1.95% and 2.02% for almost two weeks. Unable to find traction for any corrective rally, but equally finding support when the 10 hits the 2.00% area. 30 yr MBSs also stuck as would be expected as treasuries sit quietly. Rate markets remain bearish in the wider perspective but as noted many times here, overdue for a technical correction. The same is true on equity markets, overdue fort a pullback but the wider outlook is strongly bullish at the moment. That there has not been any pullback in stocks is indication investors are overwhelmingly bullish, so far any attempt to fallback has been seen as a buying opportunity, implying that any correction will be minor at best---if at all.

Mortgage Rates

Mortgage Rate Update Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the 10 yr note and MBSs were weaker; by 8:30 however with stock indexes seeing selling the 10 and MBSs were improving. 2.00% for the 10 is still holding on selling, although the note has traded over 2.00% it hasn’t been much and when it has moved slightly above 2.00% it hasn’t had any follow-through. We still hold that the rate and stock markets are overdue for a correction; is this the day it starts? We are not willing to go that far since any attempt to push stock indexes lower has so far failed to gather any momentum. It isn’t a case that we think markets are wrong, it’s just that both markets need to correct in order to continue to move higher on rates and stocks. It is all technical that we expect some retracements. This week there isn’t much in the way of data to motivate markets. Last week the economic calendar had a number of data pots, most of which were seen as bullish for the economy. Since the year began there hasn’t been much from Washington; the suspension of the debt ceiling until May and possible pay suspensions for either house that doesn’t pass a budget by April 15th. Once the debates heat up again the likelihood of the present enthusiasm will wane somewhat. The economy is improving but in our view not as strong as what the stock markets is presently discounting. More comments from the Fed; James Bullard, St Louis Fed Pres. said Last Friday in an interview that he expects growth in the world’s biggest economy to gain enough momentum to let the central bank reduce the pace of bond-buying as early as the middle of the year. As I recall that is the first time any Fed official has actually put a specific timeline for the Fed to begin withdrawing. Bullard isn’t Bernanke though and within the Fed the majority still think continuing the $85B of purchases each month should go on longer than what he is saying. Nevertheless what cannot or should not be overlooked; the Fed is increasingly talking about an end strategy. Bullard did back the Federal Open Market Committee’s decision last week to continue purchasing securities, the third round of a policy known as quantitative easing or QE. Treasury will release today its borrowing estimates for the current quarter and the three months beginning April 1. The department has resorted to “extraordinary measures” to continue funding the government after reaching its statutory debt limit. The House of Representatives voted Jan. 23 to suspend the $16.4 trillion federal debt ceiling until May 19. At 9:30 the DJIA opened -73, NASDAQ -14, S&P -7. 10 yr note at 1.99% -3 bp; 30 yr MBSs +20 bp. The only report today; Dec factory orders at 10:00 were thought to be up 3.0%, as reported inventories were up 1.86% and Nov inventories originally reported unch were revised to -0.3%. No reaction to the report. Is today the day markets begin the corrections long overdue? So far the stock indexes are lower but a few hours isn’t enough to call it. When the pullbacks begin in earnest the 10 yr note yield should decline about 10 basis points to 1.90% and 30 yr MBSs also down 10 bp in rate. To turn the bond market frm bearish to bullish the 10 yr would have to drop to 1.80% which we don’t expect. As long as the outlook for the economy remains as it currently is (improving), there is little likelihood rates will fall much. That said, as we have noted previously, as long as Markets continue to believe the Fed will continue its QE, interest rates are not likely to increase much more than where they trade today. Last week Commerce said GDP actually declined 0.1% in Q4 2012; it was largely due to a decline in government outlays and a smaller gain in inventories that subtracted a combined 2.6% points from growth.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com January unemployment rate was higher than expected at 7.9%, but job growth was better than expected with sizeable revisions to Nov and Dec data. Jan non-farm job growth +157K, private job growth 166K; Nov non-farm jobs were revised from +161K to +247K and Dec jobs were revised from +155K to +196K, a combined total of 127K more jobs than what had been previously reported. The unemployment rate was expected to have increased to 7.8% frm 7.7% in Dec. The median forecast of 90 economists surveyed by Bloomberg called for an advance of 165,000 in January payrolls. Projections ranged from gains of 115,000 to 230,000 following an initially reported 155,000 increase in December. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- stayed at 14.4%. For all of 2012 non-farm jobs increased by 2.2 million jobs. Prior to the 8:30 employment report the 10 yr yield had increased to 2.03%, by 9:00 the rate stood at 1.95%; 30 yr MBSs at 9:00 were up 21 bp after trading weaker on the release of the employment data, at 8:20 -18 bp. The stock indexes at 9:00 were on fire with the DJIA +109. Treasuries holding well on the higher unemployment rates while stocks are improving on upward revisions in job increases. Kind of peculiar, interest rates holding well in the face of a strong opening in the equity market at 9:30. At 9:30 the DJIA opened +65, NASDAQ +20, S&P +7. The 10 yr note 1.93% -5 bp; 30 yr MBS prices +40 bp. More data this morning; at 9:55 the U. of Michigan consumer sentiment index was expected at 71.5 frm 71.3; the index came at 73.8, the best since last fall when the index was in the 80s. At 10:00 Jan ISM manufacturing index expected at 55.5 frm 54.0, as reported the index hit at 53.1, the employment component at 54.0 frm 51.9. Dec construction spending was expected up 0.8%, as released spending increased 0.9% and Nov spending originally reported at -0.3% was revised to _0.1% US interest rates are better this morning on the Jan payrolls being less than estimates at 157K against forecasts of about 185K and the increases in the unemployment rate to 7.9% against estimates of 7.8%. Prior to 8:30 the 10 yr note yield was at 2.04%. Stocks are rallying because there were upward revisions to Nov and Dec job gains. The bond market has found good support at the 2.00% level; although the level has been breached a couple of times, 2.00% is holding well and supporting better mortgage prices so far. As we have noted, the bond and mortgage markets have been very oversold from a technical perspective, looks like 2.00% will hold and the retracement we have been looking for may be at hand. That said, we don’t expect there will be a huge decline in interest rates, the longer bearish outlook should continue.