Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and stock markets are closed today for Good Friday. Although markets are closed today, Feb personal income and spending were reported; income was up 1.1% while spending increased 0.7%. Estimates were for income to be +0.9% and spending +0.6%; January income was down 3.6% and spending up just 0.2%. Better income and spending, if markets were open, would likely support stock indexes and add slight pressure in the bond and mortgage markets. At 9:55 this morning the final monthly U. of Michigan consumer sentiment index was reported much stronger than expected. The index at 78.6 was expected at 72.5, the previous reading was 71.8. The increase in sentiment contradicts the Mar consumer confidence index released on Tuesday this week; that index saw a big decline, from 68.0 to 59.7 on estimates it would be at 66.9. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. The two reports this morning, if markets were open, would likely have improved the stock market and likely have the bond and mortgage markets trading weaker. The bond market, although closed, remains technically overbought based on all momentum oscillators. The likelihood of some retracement is high. Next week is employment week with March data to be reported on Friday.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The 10 yr and MBSs started a little weaker this morning; early trading in the stock indexes pointing to a slightly better open at 9:30. Neither market however was much different from yesterday’s closes. In Cyprus today, after being closed for two weeks, the banks opened for the first time. Yesterday most everyone was expecting the possibility of huge unruly crowds; lots of The bond and mortgage markets started the day a little weaker with security was planned as the world waited to see how citizens would react. Nothing happened, the opening of banks was very orderly with not many rushing to withdraw the maximum 300 euros per day. According to reports and video coverage the lines at banks were small, no more than 20 to 30 people lining up. “We expected much more people,” said a manager of a Bank of Cyprus branch. “Fortunately there are only some people who needed cash for the day, but customers reacted fantastically. We expected some people to be more aggravated.” The controls on withdrawals will continue for the next seven days. The German 10 yr bond yield rose one basis point to 1.28% after declining to 1.25%, the lowest level since Aug. 3. The yield has dropped 10 basis points this week. Spain’s 10-year yield rose one basis point to 5.09%. The rate has risen 23 basis points this week. Italian bonds (10 yr) at 4.78% was down from 4.86% earlier today, the bond up 26 bp this week. German unemployment unexpectedly rose in March; the unemployed increased 13K in the month against forecasts of a decline of 2000. Europe’s stock market today were all better on relief there were no incidents in Cyprus when their banks opened. 8:30 data; weekly jobless claims were expected to be up 4K, as reported claims were up 16K to 357K and last week’s claims were revised up frm 336K to 341K. The 4 week average increased to 343K, up 2,250; continuing claims did decline to the lowest level since July 2008. The final Q4 GDP report was expected at +0.6%, growth was +0.4% after the preliminary data last month was a growth of 0.1%. By 9:00 this morning the US stock indexes were losing all of the early improvement; the 10 yr note rate fell back to unchanged at 1.85% and 30 yr MBSs after opening down 8 bp were also back to unchanged. At 9:30 the DJIA opened +14, NASDAQ +2, S&P unch; 10 yr note +1 bp at 1.86%, 30 yr MBS price -6 bp frm yesterday’s close. 9:45 this morning brought the March Chicago purchasing mgrs. index; expected at 56.1 frm 56.8, the index fell to 52.4. Another measurement that suggests the economy may be slowing; the new orders component fell to 50 frm 60 on February. Consumer confidence slipped on Tuesday, the employment picture still too high. Would be employers and people overall are beginning to realize that Obama Care, originally touted as a cost cutting measure, will in fact cost businesses and individuals more---about $2K a year on average according recent data from American Actuaries’. Now that the reality is setting in, it is another drag on hiring full time workers. Later today, at 1:00 Treasury will auction $29B of 7 yr notes. Yesterday the 5 yr auction went OK, about in line with demand for previous 5 yr auctions. The recent decline in interest rates has been a safe haven event caused of course over the debt crisis in Cyprus. It is too early to call it over, but presently the 10 yr note , based on momentum oscillators and a key moving average, is registering overbought readings. When the 14 day relative strength indicator falls to present levels we expect some consolidation at best, at worst an increase in rates. The 10 is testing its 100 day average at 1.84%, it hasn’t traded below it since the beginning of the year. The US stock market will be closed tomorrow for Good Friday although the bond and mortgage markets will trade.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Once again yesterday as the stock market rallied, the S&P 500 failed to achieve a new high, falling short by 2 points. Early this morning US stock indexes were weaker implying a weak open at 9:30. In Europe all the major markets are weaker. Italy has political issues---again, the Italian 10 yr note at its highest rate in months on political turmoil; in Germany their 10 yr bund at 1.29% is the lowest in months. Safe haven moves sending US interest rates lower this morning; the 10 yr note walked right through its 1.90% technical resistance and at 9:00 this morning at 1.86% -5 bp frm yesterday’s close. 30 yr MBS price at 9:00 +28 bp frm yesterday’s close. Cyprus banks’ insolvency is bringing back focus on the EU banks, particularly in Italy and Spain. Cyprus is expected to open banks tomorrow with controls on withdrawals; in the end regardless of how long it takes most deposits will be gone frm the remaining “good” bank. Who will want to keep their money in Cyprus banks? Some estimates are now saying that as much as 40% of large depositors funds may be lost in the bank deal worked out over the week-end. The EU experiment has once again clearly demonstrated that without parity in the economies that make up the Union, the Union is unlikely to stabilize; it will always be that way. An on-going series of eruptions will continue the hold the region down in terms of economic growth. The have countries are not likely to continue support for the have not’s as they have over the last three years. Here in the US, the stock market rallied strongly yesterday (DJIA +111) but the broad market as measured by the S&P 500 index failed again to make a new high. Yesterday the market overlooked the dramatic decline in Mar consumer confidence, today maybe not so much. The index of confidence from the Conference Board fell to 59.7, the weakest since last Dec. Consumer confidence is critical for the outlook on consumer spending; the fall in confidence along with the increasing concerns over the EU is pressuring stock markets this morning. The run back to safety in treasuries and German bunds is increasing. That the S&P failed on five occasions over the last three weeks to break into new highs is now beginning to worry investors. Even the most bullish traders and investors have been calling for a correction in the market, today may be the beginning. At 9:30 the DJIA opened -62, NASDAQ -23, S&P -9; the 10 yr note at 1.86% -5 bp and under the 1.90% resistance level. 30 yr MBS price at 9:30 +28 bp frm yesterday’s close. The only data today, at 10:00 Feb pending home sales from NAR; the estimates prior to the release were for sales to be down 0.7%. NAR said sales pending sales fell 0.4%; yr/yr +8.4%. Pending sales are contracts signed but not yet closed. The NAR said the decline was primarily due to the lack of inventory that keeps sales down. Earlier this morning the weekly MBA mortgage applications were better after two weeks of decline; better interest rates improved the composite index 7.7% the refinance index +8.0% and the purchase index +7.0%. At 1:00 Treasury will sell $35B of 5 yr notes; yesterday’s 2 yr auction was somewhat disappointing. A bevy of Fed officials will be speaking today; 11:30 Charles Evens, Chicago Fed Pres.; 11:30 Eric Rosengren, Boston Fed Pres.; 12:15 Sandra Pianalto, Cleveland Fed Pres.; 1:00 pm Narayana Kocherlakota, Minneapolis Fed Pres. The bond and mortgage markets have new life; technically we had resistance at 1.90% and Apr 30 yr Fannies resistance was at 103.03. Both markets have broken those levels. It is back to safety with the increasing troubles re-surfacing in the EU. The next resistance level for the 10 yr is at its 100 day average at 1.84% (at 10:00 the 10 is at 1.85%). After six months with no serious issues in the EU, the region is now back as a crucial driver for equity and bond markets—here and in Europe. Continue to float this morning; so far today the stock market is adding to the momentary support for lower US interest rates.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Interest rate markets continue to trade in a tight range, this morning the 10 yr note started down 4/32 at 1.93% +1 bp and 30 yr MBS price at 8:30 -3 bps. US stock indexes early today were pointing to a better opening at 9:30, the same as yesterday; but yesterday after opening better the DJIA dropped 117 points before ending -64. The EU is still impacting markets; although the troika and Cyprus leaders cobbled a plan to keep the country from falling out of the European Union, the plan is not likely to go down well with investors both in Cyprus and other weak EU countries. Yesterday the Dutch finance minister said the plan worked out was a blue print for future banking crises in the EU; his remark sent the DJIA down 117 points. Last night he back-pedaled and in essences retracted his remark. It a common occurrence in the EU for officials to say something then get their mouth’s smacked by other officials, or after seeing the reaction, recant. At 8:30 Feb durable goods orders were better than expected, up 5.7% and Jan revised from -4.9% to -3.8%. Consensus estimates were for orders to have increased 3.9%. Orders for aircraft increased 95.3%, Boeing saying it received orders for 179 planes in Feb. Auto sales also boosted orders, up 3.8% the most since last July. Ex-transportation orders durables declined 0.5%, Jan though was revised from +2.3% to +2.9%. The increase in orders will likely increase the GDP estimates for this quarter. There was no noticeable reaction to the report. The Case/Shiller 20 city housing index for Jan, out at 9:00, was expected at +8.2% yr/yr; as reported the 20 city price increase was right on at +8.1%. In Dec the yr/yr increase was +6.8%. On a month to month basis prices increased 1.0% after increasing 0.9% in Dec. Case/Shiller data is dated, two months in arrears, but does get a little attention. Not one of our favorite series though. No reaction to report. At 9:30 the DJIA opened +67, NASDAQ +14, S&P +7. 10 yr at 9:30 1.94% +2 bp; 30 yr MBS -6 bp, FHA -12 bps. Two major reports at 10:00. Feb new home sales were expected down 3.5% to 426K units (ann.), sales as reported were 411K (ann.), down 4.6%. Jan sales were +13.1%. The median price increased to $246,800.00, up 2.9% yr/yr. Based on current sales there is a 4.4 mo supply. Although a little weaker, overall new home sales holding up well. Builders saying finding employees is beginning to be a problem and land prices are increasing. March consumer confidence was thought to be at 67 frm 69 in Feb; the index dropped to 59.7, not what we wanted to see, however there was no initial reaction to the drop in confidence. The report and the U. of Michigan consumer sentiment index is subject to emotional variances. At 1:00 this afternoon Treasury will begin the monthly auctions of notes totaling $99B. Today $35B of 2 yr note, likely to see good demand. Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes. It is Spring time; at least that is what the calendar says but with 7” of snow on the ground it surely doesn’t feel like it. In the oil world though prices are increasing as they generally do this time of the year. Crude increased $0.83 yesterday, this morning up another dollar. Fill up now or pay the price later. Technically speaking; the MBS markets continue to struggle at present levels, the 30 yr FNMA coupon for April has yet to break above its 2 and 40 day averages. The 10 yr note is slightly better but it too is struggling at its 20 and 40 day averages. The relative strength index on the 10 is presently in positive territory but is slowing and not as bullish as at the beginning of the month. We hold with our overall forecasts; interest rates are not likely to decline much frm present levels and not likely to increase much either. As long as the Fed and other central banks remain accommodative rate should be contained in the present wide range, from 1.90% to 2.05% on the 10 yr. 30 yr MBSs have to move up to 103.03 and hold to change the soft current outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Cyprus secured a bailout from its creditors; ending a week of financial panic that threatened to see the island nation become the first government to leave the euro zone. In the late hours of Monday morning Cyprus agreed to the outlines of an aid package, paving the way for 10 billion euros ($13B) of emergency loans to stave off the threat of default. The accord imposes losses that two European Union officials said would be no more than 40% on uninsured depositors at Bank of Cyprus Plc, the largest bank, which will take over the viable assets of Cyprus Popular Bank Pcl, the second-biggest, which will be wound down. Europe’s stock market rallied on Monday and early Monday bolstered US stocks for a better open at 9:30. The Cyprus solution is the first time since the credit and debt crisis began in Greece in 2009 that bank depositors and stock holders are being forced to take losses; all shareholders and bond holders in the Cyprus Popular bank that will be closed. The deal will undoubtedly bring into focus the safety of deposits and bonds issued by other banks in the larger countries in the EU that are still facing debt issues (Italy, Spain, Portugal). At 9:00 this morning on the Cyprus deal the US stock indexes were pointing to a strong open; early today it appears that today may be the day when the S&P 500 index moves to an all-time high at 1565. The 10 yr at 9:00 -7/32 at 1.96% +3 bp and 30 yr MBSs -9 bp frm Friday’s close. At 9:30 the DJIA opened weaker than it was trading in the pre-market futures, +26, NASDAQ +11, S&P +5; all of the indexes were over twice as higher than at the actual open. MBS prices at 8:30 -21 bp, at 9:30 -2 bps. Already today a lot of volatility. There are no economic reports today but Fed chief Bernanke will be in discussions with IMF and BOE officials on lessons learned from the crisis. Hardly a topic that has much meat given the renewed increase in the EU over their banks and the Cyprus crisis. More bank issues now turning to Spain. Spain's government will impose heavy losses on investors at nationalized banks and hire external advisers to help it manage the banks' assets. A number of key reports this week and Treasury borrowing $99B of notes at its normal monthly auction. No reports today; tomorrow Feb durable goods orders, and new home sales; weekly claims on Thursday and the final Q4 GDP data. Two indicators of consumer confidence this week; the Conference Board’s consumer confidence index and the final Mar U. of Michigan consumer sentiment index. The Cyprus deal this morning has removed some of the safe haven concerns that drove the 10 yr note yield down briefly to 1.90% last Tuesday; this morning the 10 at 1.95% has pushed the note back over its 20 and 40 day averages. In the MBS market the 30 yr Apr FNMA coupon never did break above its 20 and 40 day averages (price). The outlook remains bearish, but not severe. The fixed income market is still tied to how the stock markets trade. As long as the equity markets continue to improve the bond market isn’t likely to decline in rates. On the other side; as long as the Fed is still holding its QE purchases there is little likelihood rates will increase much. Technically, the 10 has resistance at 1.90%, support at 2.00%; 30 yr FNMA MBS has resistance at 103.03 price and support at 102.00 (current price . Although a deal was reached to keep Cyprus from existing the EU, the reaction in the US and German bond markets hasn’t been much.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A little better start in the mortgage and bond market this morning even with the stock indexes opening better. It remains all about the Cyprus banks and whether Cyprus can come up with 5.8B euros in order to get bank rescue money from the ECB. Yesterday the gauntlet was laid down to Cyprus by the ECB and EU officials; raise the money by Monday or the rescue is off. Tough talk as there has been in the past, but in recent past crisis’s in Spain, Italy and Portugal the deadlines were achieved in various forms to avoid any systematic EU meltdown. Will it be different this time? Markets are taking the Cypriot banking crisis in stride so far, no massive runs in Europe’s stock markets, the US stock market holding well and while there has been a certain amount of safety moves into US and German bond markets, the amount hasn’t been extreme. Why so much angst over a country with very small population and not a major economic contributor to the EU? Unless Cyprus stays in the EU there is speculation that even if one country is allowed to exit the Union, it would set a precedent for other members to walk away. Keeping the 17 member EU intact is seen as critical to the future cohesiveness of the entire Union. Allowing one country to leave, even a tiny one like Cyprus, is seen by many to represent a crack in the entire EU. No one really knows for sure what the consequences would be if it is forced out but as in all past episodes over the last three years in the region, the worst case scenario dominates thinking. Based on the latest info, according to the troika, Monday is the deadline for Cyprus to raise 5.8B euros. What happens if the country doesn’t is the unknown keeping markets on edge. At 9:30 the DJIA opened +25, NASDAQ +13, S&P +5; 10 yr note at 1.92% unch and 30 yr MBS price +9 bp frm yesterday’s close. There are no economic releases today and little expected news other than what may slip out from Europe. It should be a quiet session ahead of Monday’s supposed deadline for Cyprus and possible additional news over the weekend. In Germany Angela Merkel told a closed-door meeting of legislators in Berlin today that she’s annoyed the Cypriot government hasn’t been in touch with the so-called troika of international creditors for days. She vented a little more anger than she has in the past, saying Cyprus is testing the EU’s resolve and it isn’t acceptable. The main reason US interest rates have declined somewhat over the last few days is about safety. The move of money into safe havens though, has not been dramatic compared to panic moves into US bonds as in the past upheavals over the last couple of years. The US stock market, although not rallying, is holding well. The take away is that for all the talk and fears being vented over Cyprus, so far it is mostly talk with not much investor reaction. If the crisis is avoided markets will return to more direct fundamentals; the economy and normal issues that are always present. The US economy is strengthening, the bond and mortgage markets outside of the recent Cyprus situation, hold slightly bearish biases. We still hold that interest rates will not increase much over 2.00% and that rate markets will not decline much----unless the EU is seen as unraveling, and isn’t likely.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Bonds started slightly better today, mortgages also better after yesterday’s declines in prices. In the EU-Cyprus banking crisis nothing has been achieved so far, the country has extended its bank holiday until next Monday, keeping banks closed. The country was unable to negotiate any deal with Russia so far. The ECB taking a strong stand, saying it will cut Cypriot banks off from emergency funds after March 25 (Monday) unless the island agrees on a bailout with the European Union and International Monetary Fund. “The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance, ELA, until Monday, 25 March 2013,” the Frankfurt- based ECB said “Thereafter, ELA could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks.” Cypriot banks have relied on ELA funding from their own central bank since they were cut off from regular ECB refinancing operations in June following the downgrading of the country’s credit rating by all three major rating firms to junk status. The recent sharp decline in US and German long term rates was what now appears more of a knee-jerk reaction to the banking crisis in Cyprus. Investors initially fearing that if the country actually took money frm bank depositors that was being forced on the country, it would lead to the same demands on bank deposits in Italy, Spain and Portugal. After a few days and no additional buying of US or German notes and bonds, and after further thinking, it now appears that the Cyprus banking crisis is not likely to spread. It is now seen as a non-event in terms of the EU or any contagion fears. Even if Cyprus leaves the EU, based on how markets are reacting, the fear factor that drove rates lower is not likely to continue----at least that is the view at the moment. The next issue now will focus on what happens on Monday and how markets react to whatever occurs. This morning weekly jobless claims were thought to be up 7K to 340K; as reported claims were up 2K to 336K and last week’s claims were revised from 332K to 334K. The four-week moving average of claims, a less-volatile measure, dropped to a five-year low of 339,750 from 347,250. Recent employment stats have been much better than most forecasts; in Feb job creation increased 336K and 119K new jobs in January, and the unemployment rate fell to 7.7% in Feb, lower than 7.8% expected. Based on recent data, the employment sector is gaining momentum; the Fed however isn’t likely to bite just yet. Bernanke will want more confirmation before seriously thinking of reducing the $85B monthly purchases of treasuries and MBSs. At 9:00 the January FHFA housing price index was expected at +0.7%, as reported the index increased 0.6%; yr/yr prices were up 6.5% frm Dec yr/yr of 5.6%. US stock markets opened weaker this morning, improving the bond market but not much in the mortgage world. The DJIA opened -64, NASDAQ -25, S&P -8. At 9:30 the 10 yr note at 1.93% -3 bp and 30 yr MBS price not much changed, up just 4 bps. The stock market has lost a little luster recently with the S&P unable to make a new high. Very nervous here and in Europe; at about 9:30 a Russian “official” out on the wires saying the Cyprus baking crisis is a long way frm being resolved. The immediate reaction sent US treasury rates and German bund market lower (rates). Volatility in markets continues. More data at 10:00. Feb existing home sales expected up 2.8% at 5.01 mil units (annualized); as reported sales were up 0.8% to 4.98 mil units; single family sales down 0.2%. There was an increase in the inventory level for the first time since Apr 2012 at 4.7 month’s supply, the median sales price $173,600. Feb leading economic indicators were expected +0.4%, as reported up 0.5% and Jan was revised from +0.2% to +0.5%. The March Philadelphia Fed business index, expected at -1.5 frm -12.5 in Feb, the index increased to +2.0. There was no reaction to the three reports, even though on balance they were better than estimates, the bond and stock market didn’t budge on the releases. The improvement in the bond market today is mostly due to the soft stock market rather than safe haven buying over the EU/Cyprus banking crisis. Stocks weaker following Europe’s markets and concern that the broad S&P 500 could not make a new high after moving to with five points two times in the past few sessions.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Not a good start this morning in the bond and mortgage markets; European stock markets better leading to better US stock index prices in the futures markets prior to the open at 9:30. Late yesterday afternoon MBS prices declined from what we reported at 4:00; at 4:00 30 yr MBS price was +23 bp, at 5:00 +12 bps. This morning the 10 yr note yield at 9:00 1.94% +3 bp frm yesterday’s close. As we noted yesterday, the fall in US interest rates over the last four sessions was caused by renewed concerns in the EU, re-ignited by banking problems in Cyprus. It was all a safety run into treasuries and German bunds, fears of Cyprus banks failing and the potential that other EU countries may also be pulled into a plan that has shaken global markets temporarily. The ECB and IMF told Cyprus that it must raise 10B of euros to get help for its banking system; the initial Cyprus plan called for taking money from bank depositors to come up with the necessary capital. The Cyprus parliament yesterday voted against tapping depositors’ money. Now Cyprus is trying to get Russia involved by selling part of its banks to them, much of the deposits in Cyprian banks is Russian money. Meantime officials in the EU, ECB and IMF are not softening their tones about letting the country fall and exit the EU. The safety trade that sent the US 10 yr note rate down 12 bps since last Friday has cooled; rates today higher and the stock market opening very strong. Whether the Cyprus issue is a one and off problem is still in question but the fear factor has apparently ebbed for the time being. We noted in yesterday’s afternoon report that it was a possibility, and that if fears subsided interest rates would likely increase. The DJIA opened +60, NASDAQ +24, S&P +8; 10 yr note at 9:30 1.95% +4 bp and 30 yr FNMA price -15 bps. This morning the weekly MBA mortgage applications data for the second week in a row was soft. The overall composite index declined 7.1% after falling 4.7% last week. The purchase index declined 4.0% after declining 3.0% last week, the re-finance index dropped 8.0% after dropping 5.0% last week. MBA said the continuing rise in mortgage rates is a major factor in the weakness in mortgage applications with the average 30-year mortgage for conforming loans ($417,500 or less) at 3.82% for a one basis point increase in the week. It takes consumers time to realize mortgage rates are not unlikely to decline, and to accept it as reality that the likelihood of higher rates is stronger than for declining rates. At 2:00 this afternoon the FOMC will release its policy statement. The statement will likely not change much frm the last meeting; economic recovery continuing but slowly, unemployment improving but not quick enough for the Fed to think of ending its QE support for the bond and mortgage markets, the housing sector on the path of recovery. At 2:30 Ben Bernanke will hold a press conference; likely a lot of interesting questions will be forthcoming for reporters. Bernanke will have the opportunity to be more specific than what the policy statement reveals 30 minutes earlier. The EU with the banking crisis in Cyprus is still a factor, however unless there is constant negative news frm the region the safety trade won’t likely stand long. Europe’s stock markets are better and at least today, ignoring the new so-called crisis. The US stock market also ignoring it. The ECB is standing firm at the moment that Cyprus will have to come up with 10B euros before it gets more bailout funds; markets though appear to be discounting the tough talk and believe in the end the ECB, IMF and EU officials will eventually give in and keep the country from a banking collapse. Investors are also less concerned today that Cyprus’s issues will not spread to larger EU countries (Italy, Spain and Portugal).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally quiet in early activity this morning in the bond and mortgage markets; trade in the stock index futures at 9:00 pointing to a better open at 9:30. In Europe stock markets are weaker, continuing to decline on the renewed debt crisis that surfaced in tiny Cyprus. In an effort to get financial assistance frm the ECB and IMF the country announced it would simply take money frm bank deposits; the plan endorsed by the ECB and IMF. The original idea was to take 6.75% of customers’ accounts under 100,000 euros and 10% of deposits that are over 100K euros (much of it money frm Russian depositors). After protests raged against the “theft” the country’s parliament delayed the vote, considering taking less, if anything, from savers that have less than 100K euros. Banks in Cyprus remain closed until Thursday. According to estimates, if the government actually does raid accounts the amount is about 5.8B euros ($7.5B). EU finance ministers appear to be back-tracking on the demand to raid small accounts under 100K euros. Feb housing starts and permits, the only data today; starts were up 0.8% to 917K annualized units, less than expected but offset by increased starts in January from what was initially reported. Jan starts originally recorded down 8.0% were revised to -7.3%, in terms of units the revision totaled 910K frm 890K originally reported. Taken together the two months are in line with forecasts and continue to confirm the sector is improving. Feb building permits were stronger than estimates at +4.5% to 946K units, units were expected at 925K. Stock indexes gained a little more on the data. The bellwether 10 yr note is at its 40 day average, so far unable to break below it. 30 yr MBS price also at a critical technical level, its price unable to move above its 20 day average. At 9:30 the stock market opened better; the DJIA +38, NASDAQ +10, S&P +4; the 10 yr note at 9:30 1.94% down 1 bp and 30 yr MBS price +6 bps. Today the FOMC meeting gets underway; there won’t be any news though until tomorrow afternoon at 2:00 with the policy statement, then at 2:30 Ben Bernanke will hold his press conference. Expect questions from reporters to range frm the renewed debt concerns in the EU to details on the economy and plans to exit QEs. The Fed is not about to exit the $85B of monthly purchases of treasuries and MBSs until at least the end of the year---if then. While the US economy is improving, the resurrection of the EUs problems will keep the Fed and other central banks accommodative. With little additional news from the EU, and tomorrow’s FOMC policy statement and Bernanke’s press conference, today is likely to quiet with little changes in the bond and mortgage markets. The stock indexes have started better this morning however we do not expect any major changes. In the near term the bond and mortgage markets are looking slightly better; most of the strength however is based on minor moves to safety in US and German bond markets over the uncertainty about Cyprus contagion. Standing on its own Cyprus is a hiccup in the wider perspective; the fear is that if the country actually does take depositors money, other EU countries may also try it. That isn’t very likely, but the concern over it has pushed some money into safety of US notes and German bunds.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Until this weekend the most important event this week was the FOMC meeting on Wednesday. Over the weekend though the euro zone took center stage with debt issues in Cyprus; its banks are teetering on collapse. The plan that emerged calls for taxing all depositors in the banks in the country; the tax calls for 10% tax for deposits over 100K euros and 6.75% on deposits less than 100K euros. After months of little news from the euro zone, it is back now with another crisis that could threaten the euro nation. Taxing depositors to shore banks had been talked about over the years of crisis in the zone, but had always been dismissed. It leaves the question now about other countries in the EU and resurrects the debt crisis that hasn’t gone away even after months of quiet in the zone. Early this morning the stock markets in Europe and here are under pressure and has led to a decline in US treasuries on safety concerns. The overall fear over the plan to tax depositors is fueling concerns over all banks in Europe that deposits may be subject to taxing. At 9:00 the 10 yr note yield down to 1.94% -6 bp frm Friday’s close; 30 yr MBSs +30 bps. The stock indexes at 9:00; DJIA -87, NASDAQ -24, S%P -14. At 9:30 the DJIA opened -97, NASDAQ -36, S&P -14; the 10 yr note 1.94% -6 bp and 30 yr FNMA price +29 bps. By 10:00 the DJIA and NASDAQ have climbed back and cut the initial losses by half from the opening levels. The only data today at 10:00 the NAHB housing market index was expected at 47 frm 46 in Feb, as reported, not a good number at 44, the lowest since last Oct. Somewhat of a surprise as the new home market has been hot based on recent data of new home sales and interviews from a number of CEOs of public homebuilders. No reaction to it. The rest of the day will be focused on the renewed fears frm the EU. The banking crisis in Cyprus, their banks all but in solvent and now taking money from depositors to satisfy the ECB and IMF. Cyprus has 8 million people, about the population of Chicago and on its own no one would pay much attention. The fear for the moment is that depositors in Italy, Spain and other soft southern Europe countries may make runs on their banks fearing the same fate levied on Cyprus. In Germany, the anchor for the euro, political debates increasing about the cost Germany is incurring dealing with one crisis after another. Merkel’s coalition government is not as firm today as it has been over the past few years. The banking crisis in Cyprus is playing into the hands of Germans that want an end to the costs to keep the EU frm unwinding. The Cyprus issue may in the end cause the country to leave the EU, something the IMF and EU officials fear would trigger other exits. It is still a developing issue that is renewing the need for safety into German bunds and US treasuries. Wednesday the conclusion of the FOMC meeting with the policy statement. The Fed is likely to continue saying the economy is recovering slowly, unemployment still too high and that the Fed will continue to buy $85B of treasuries and mortgages each month. We won’t know much about the discussions within the meeting about how and when the Fed will exit until the minutes are released in two weeks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Until this weekend the most important event this week was the FOMC meeting on Wednesday. Over the weekend though the euro zone took center stage with debt issues in Cyprus; its banks are teetering on collapse. The plan that emerged calls for taxing all depositors in the banks in the country; the tax calls for 10% tax for deposits over 100K euros and 6.75% on deposits less than 100K euros. After months of little news from the euro zone, it is back now with another crisis that could threaten the euro nation. Taxing depositors to shore banks had been talked about over the years of crisis in the zone, but had always been dismissed. It leaves the question now about other countries in the EU and resurrects the debt crisis that hasn’t gone away even after months of quiet in the zone. Early this morning the stock markets in Europe and here are under pressure and has led to a decline in US treasuries on safety concerns. The overall fear over the plan to tax depositors is fueling concerns over all banks in Europe that deposits may be subject to taxing. At 9:00 the 10 yr note yield down to 1.94% -6 bp frm Friday’s close; 30 yr MBSs +30 bps. The stock indexes at 9:00; DJIA -87, NASDAQ -24, S%P -14. At 9:30 the DJIA opened -97, NASDAQ -36, S&P -14; the 10 yr note 1.94% -6 bp and 30 yr FNMA price +29 bps. By 10:00 the DJIA and NASDAQ have climbed back and cut the initial losses by half from the opening levels. The only data today at 10:00 the NAHB housing market index was expected at 47 frm 46 in Feb, as reported, not a good number at 44, the lowest since last Oct. Somewhat of a surprise as the new home market has been hot based on recent data of new home sales and interviews from a number of CEOs of public homebuilders. No reaction to it. The rest of the day will be focused on the renewed fears frm the EU. The banking crisis in Cyprus, their banks all but in solvent and now taking money from depositors to satisfy the ECB and IMF. Cyprus has 8 million people, about the population of Chicago and on its own no one would pay much attention. The fear for the moment is that depositors in Italy, Spain and other soft southern Europe countries may make runs on their banks fearing the same fate levied on Cyprus. In Germany, the anchor for the euro, political debates increasing about the cost Germany is incurring dealing with one crisis after another. Merkel’s coalition government is not as firm today as it has been over the past few years. The banking crisis in Cyprus is playing into the hands of Germans that want an end to the costs to keep the EU frm unwinding. The Cyprus issue may in the end cause the country to leave the EU, something the IMF and EU officials fear would trigger other exits. It is still a developing issue that is renewing the need for safety into German bunds and US treasuries. Wednesday the conclusion of the FOMC meeting with the policy statement. The Fed is likely to continue saying the economy is recovering slowly, unemployment still too high and that the Fed will continue to buy $85B of treasuries and mortgages each month. We won’t know much about the discussions within the meeting about how and when the Fed will exit until the minutes are released in two weeks.

Mortgage Rate

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com European stocks weaker this morning, in early US futures trading markets were relatively unchanged, the 10 yr note -3/32 at 2.04% at 8:30. 8:30 data didn’t move markets; Feb CPI in line with forecasts +0.7% overall, and ex-food and energy +0.2%. Inflation is no problem and attracts little attention in markets. The Empire State manufacturing index was expected at 10, as reported 9.24 frm 10.4 in Feb. Neither data had any immediate impact on markets. Overall CPI at +0.7% was a little higher than thought but not a concern, the increase to 0.7% was mainly due to increases in gasoline prices in Feb; since Feb gas prices have moderated. Gasoline prices climbed 9.1% last month, the biggest advance since June 2009. That drove a 5.4% gain in overall energy costs. The core rate +0.2%, is where the focus always is and it was tame and in line with estimates. The Empire State report was a little disappointing but still held above zero; new orders index fell to 8.2 frm 13.3, the price index at 25.8 frm 26.3 (good) and the employment index declined to 3.2 frm 8.1. If the stock market were not so bullish as it is these days, the Empire State would have pushed indexes lower. At 9:15 Feb industrial production was thought to be up 0.5%, it increased 0.7% the most in three months; January production was revised to unchanged. Frm -0.1%. Manufacturing which accounts for 75% of industrial output increased 0.8%, the 3rd gain in the last four months. Feb factory usage was expect at 77.5%, as reported use of factories was at 79.6% the best since Mar 2008. At 9:30 the DJIA opened -27, NASDAQ +1, S&P -2; 10 yr note unchanged at 2.03% and 30 yr MBS prices also unchanged. At 9:55 the last data this week, the U. of Michigan mid-month consumer sentiment index was forecast at 77.5, as reported the index fell to 71.8, a huge decline and the lowest index reading since Dec 2011 when it fell to 69.3. Until this report the data this morning was, on balance, better than expected but didn’t get any support in markets. The soft sentiment index however triggered additional selling in the equity market and jumped the 10 yr back to 2.00% -3 bp on the day with 30 yr MBS prices up 10 basis points in price frm 9:30 levels. Yesterday the 30 stocks in the DJIA index made another new high, the 10th in a row for the index, yet the broader market as measured by the more significant S&P 500 index still can’t push to a new high. Yesterday the index closed at 1563.23, the high close is 1565.15, so close but not even the most bullish could generate enough interest to break through. This morning the stronger Feb industrial production and factory use were much better than expectations but didn’t influence the markets so far. Today options expire that at times can increase volatility through the day. We still have a bearish interest rate market based on all of our technical models, however the strength of the bearishness has waned in the last week after rates exploded last Friday on the Feb employment report. The level to watch now is 2.06% on the 10 yr note, a close above it will imply more increases. On the other side, there is very strong resistance at 1.95% for the note. Next week the FOMC meets on Tuesday and Wednesday, after the strong Feb employment data and other better than expected reports on the economy what will the Fed think when the FOMC policy statement is released Wednesday afternoon? We expect trade early next week to be rather flat ahead of the FOMC meeting.

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 weaker early on better stock index trading, at 8:30 weekly jobless claims were expected to increase 10K, claims declined 10K to 332K and last week’s claims were revised frm 340K to 342K. Weekly claims for unemployment compensation have been falling for weeks now, there can be little argument that the job market is getting better, slowly and not as quickly as anyone wants, but improving. Until the last few weeks claims had been hanging around the 360K to 370K, now 40K a week less, the lowest level in two months. The four-week average declined to a five-year low. The reaction pushed the 10 yr note to 2.07% briefly and 30 yr MBS prices -28 bp frm yesterday’s close. Stock index futures also gained a few more points on the claims data. Feb producer price index, also at 8:30 was in line with forecasts and estimates; +0.7% overall and ex food and energy +0.2%. Yr/yr overall PPI +1.7% and the core also +1.7% for the last 12 months. Inflation based on the PPI this morning is still well within the Fed’s tolerance range and didn’t generate any additional selling in the bond market---it was all about the weekly claims this morning. European stocks rose to an almost five-year high as policy makers gathered for a two-day summit. EU officials are said to be willing to grant France, Spain and Portugal extra time to bring down deficits. The ECB cut its forecasts on March 7 and now expects the 17-nation euro-area economy to contract 0.5% this year before growing 1.0% in 2014. Last week the ECB left its interest rate unchanged, there were some rumors that the ECB would lower the rate. The Q4 current account deficit unexpectedly declined 1.8% to $110.4B with estimates of -$112.5B. The current account is the total measure of international trade including income payments and government transfers. Q3 2012 account deficit was -$112.4B. For all of 2012, the current-account gap expanded 1.9% to $475B, the widest in four years. Not much of a momentary market mover, the current account data usually excites economists that work on longer range implications to the economic outlook. Yesterday Treasury sold $21B of 10 yr notes at auction, the demand was much stronger than most were expecting; today at 1:00 Treasury will sell $13B of 30 yr bonds. Foreign central banks and foreign investors took almost half of the $21B of 10s, US banks took 30.0% leaving Wall Street dealers with just 22% of it to distribute. At 9:30 the DJIA opened +27, NASDAQ +8, S&P +3; 10 yr note at 2.06% +3 bp, 30 yr MBS prices -31 bps. Is this the day when the S&P 500 index makes its new all-time high? The DJIA has been making new highs now for the last nine days but the broad S&P has struggled; the high is 1565, at 9:30 1558. More key data tomorrow; Feb CPI, Mar Empire Sate manufacturing index, Feb industrial production and factory use and the U. of Michigan consumer sentiment index. The bond market is at critical levels this morning; the 10 yr note trading at 2.06%, a close above that level will be a new high for tis recent increase in rates and set up additional bearishness. The highest yield so far on an interday basis was 2.09% on the initial reaction to the Feb employment report last Friday. Fighting the tape with wishful thinking has not been a good idea for those that still believe interest rates will decline. Although we can expect some improvement when (if) the stock market ever retreats, the problem with that strategy is that rates have continued higher as stock indexes increase; so a correction won’t likely take rates down to levels seen a week ago.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 when Feb retail sales were reported the 10 yr note at 2.00% was -2 bp and 30 yr MBSs were up 6 bp frm yesterday’s close. Retail sales for Feb was expected to be a little soft on concerns the payroll tax increase might continue slow spending seen in January. The estimate for overall sales was +0.6% and when auto sales are extracted, up 0.2%. Sales increased 1.1% and ex-auto sales +1.0%. Feb sales ex-autos and gasoline were up 0.4%. Jan overall sales was revised to +0.2% frm 0.1% and ex-auto sales from +0.2% to +0.4%. The stronger sales report turned markets; at 8:45 the 10 yr note -5/32 at 2.04% +2 bp frm yesterday’s close and 30 yr MBS price down 9 bp frm the close yesterday. US stock indexes were weaker prior to 8:30, at 8:45 back to unchanged. Feb retail was the strongest in the last five months, adding more conviction the economy is improving. The Feb employment report last week also was better than markets were expecting, now retail sales adds to the optimism that recovery is happening quicker than thought. Even the Fed should be surprised with the number; the Fed has continued to say the economy is improving but not as rapidly as retail sales and the Feb employment data has indicated. Eight of 13 major categories in the sales report showed increases last month, led by a 5% jump in receipts at gasoline stations that reflected higher fuel costs. Sales also climbed at building materials outlets, auto dealers and general merchandise stores. Next week the FOMC will meet on Tuesday and Wednesday with the policy statement released Wednesday afternoon; how will the Fed frame the recent firmer data? Bernanke will likely hold that the economy still has soft spots and that unemployment is still too high. The Fed will continue the QE buying of $85B of treasuries and mortgages, in the eyes of the Fed the easing is helping and it will continue for months ahead. US retail sales data didn’t help stock markets in Europe, all three major markets in the region were slightly weaker today on soft industrial production data. Production in the 17 nation euro zone in Jan declined 0.4% on estimates of a decline of 0.1%. Yr/yr production down 1.3%. Europe’s economy struggling and presents a drag on global markets. In China its economy also slowing as the country turns inward toward domestic improvements and away frm relying mostly on exports. Earlier this morning the weekly MBA mortgage applications data; the overall composite index -4.7%, the purchase index -3.0% and the re-finance index -5.0%. The interest rate for 30 yr conforming mortgages increased to 3.81% for 80% loans with origination fees included, an increase of 11 bp frm the previous week and the highest rate since last August. Until last Friday’s employment report 30 yr rates were about unchanged frm the prior week but the strong data sent rates climbing Friday morning. Both the purchase and re-finance indexes the previous week were up 15%. At 9:30 the DJIA opened -4, NASDAQ -0.4, S&P -0.7; 10 yr note at 2.04% +2 bp, 30 yr MBS price -12 bps. Jan business inventories at 10:00 was expected up 0.5%; as reported inventories increased 1.0%, Jan inventories originally +0.1% were revised to +0.4%. The increase in inventories the largest since May 2011. At the January sales pace, businesses had enough goods on hand to last 1.29 months, up from 1.28 months in the prior month and the highest since August. Business sales dropped 0.3%, reflecting declines at factories and wholesalers. Purchases at retailers advanced 0.3% after a 0.4% gain in Dec. At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr auction was somewhat disappointing, the 10 yr is much more interesting as it impacts mortgage rates and long term fixed income investors. The demand will be important, at last month’s 10 yr auction the 10 went 2.04%, the demand last month was somewhat soft compared with previous recent 10 yr auctions. Treasury will report the Feb budget data at 2:00; markets are expecting the deficit for the month at -$205B. By 10:00 this morning the stock indexes were trending lower, unable to improve on the retail sales report. Unless the S&P can make a new all-time high today or tomorrow, it is unlikely to happen until the conclusion of the FOMC meeting next Wednesday. The longer it takes the S&P to make a new high, (it is 16 bp away at 10:00), the more nervous traders will become and in turn may push the stock market down on profit-taking ahead of the FOMC meeting. That said, we do not expect a serious decline in stock indexes which will keep interest rates frm declining much. Any improvement in mortgage rates should be used to lock in critical deals; we don’t believe the bond and mortgage markets will lose their bearish outlooks either fundamentally or technically.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early this morning the US stock indexes were fractionally weaker while markets in Europe are mixed but with little changes frm yesterday. Treasuries and MBSs traded a little better early, but like the stock markets generally flat prior to the 9:30 open in the equity markets. The Feb NFIB optimism index released early today was better than expected, the index was expected at 90.1 frm 88.9 in Jan; as reported the index increased to 90.8. It isn’t considered a first tier data but that it did increase is another report that is better than forecast. Redbook reported solid strength in same-store sales during the March 9 week, at a year-on-year plus 2.7% which is more than one full percentage point above lows in January. Redbook's month-to-month data call not only for a gain in February but now for a gain in March relative to February. At 9:30 the DJIA opened +2, NASDAQ -9, S&P +1. The 10 yr at 9:30 +8/32 (25 bp) at 2.04% -2 bp; 30 yr MBSs +15 bps. Yesterday the broad based S&P 500 index came within 9 points of a new all-time high; while the DJIA made new highs every day last week the wider market has still not been able to break through. At present levels the S&P is at what is now a triple top for the index going back to March 2000, if it doesn’t break out it could lead to a major decline based on a very serious technical top for the index. We expect it more likely we will see the index break to new highs, it could easily be today or in the next week. If it does not break to a new high very soon expect selling will take it and all the indexes down in the long awaited retracement that draws a lot of talk but so far it continues to move higher. One week from today the next FOMC meeting begins, concluding the following day with the usual policy statement. The meeting is always very critical, this time maybe a little more serious after the surprisingly strong employment report last Friday. Since the report there has been an increase in talk and debate about what the Fed may do with its QE, purchasing $85B of treasuries and mortgages every month. It is unlikely the Fed is going to end or even curtail its purchases now or in the immediate future; one strong employment report isn’t enough for the Fed to make any radical decisions. The QE will continue, however the policy statement after the meeting will be important; how the FOMC characterizes the economy and employment should provide plenty to think about. This afternoon at 1:00 pm Treasury begin three days of borrowing with $35B of 3 yr notes, tomorrow $21B of 10 yr notes and Thursday $13B of 30 yr bonds. At 2:00 Treasury will report the Feb budget balance at $-205B. On the budget front; Republicans have a plan, Democrats have their plan, the President has his also. None of it has any common ground; no tax increases from Republicans, just spending cuts. Democrats have tax increases (increased revenues) and only minor cuts that will not balance the budget in 10 yrs. The President wants no spending cuts, actually more spending, and tax increases. Nothing different than in the last six months. So far this morning markets are sitting quietly with little changes; there is little news to motivate any major movement so far. Mortgages doing better as is the 10 yr with stock indexes hanging around unchanged so far. The bias for interest rates remains bearish, however there will be a nice rebound frm these high rates if the stock market rolls over, we suggest keeping focused day to day but maintain a bearish outlook until the 10 yr can move below 2.00% which isn’t likely unless equity markets succumb to selling and profit-taking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries trading a little weaker early this morning while trade in stock index futures were slightly weaker prior to the 9:30 open. There are no scheduled economic reports today. At 9:30 the DJIA opened -9, NASDAQ -6, S&P -2; 10 yr note unchanged at 2.05% and 30 yr MBSs +4 bp. After the strong increase in interest rates last week and the stock market running to new all-time highs on the DJIA (S&P still hasn’t made it), this week is likely to see some minor improvement in rate markets while the stock market rests. At least that is what we expect, but until there is a significant decline in stock markets here and globally, interest rates have more propensity to increase than decline much. Three key data points this week; Feb retail sales, industrial production and factory usage. Congress working on the budget this week; Republican’s plan has no chance with cuts to Medicare and Medicaid, no cuts on Pentagon spending AND no new taxes. Democrat’s plan; increased taxes on high income earners and corporations and no cuts on Medicare or Medicaid, also a non-starter. The two parties are so far apart that a consensus seems highly unlikely. Also this week Treasury auction 3 yr, 10 yr and 30 yr notes and bonds beginning on Tuesday through Thursday. The total of $69B is $10B less than what Treasury has been borrowing in the last six months, the cuts are in the 10 yr and 30 yr auctions. French industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years. In Germany, after a sluggish in Q4 the Bundesbank predicts it will rebound in the current quarter. Confidence among investors and businesses jumped in February and retail sales rose the most more than six years in January. Still, factory orders unexpectedly fell and industrial production stagnated. The European Central Bank last week cut its forecasts and now expects the euro-area economy, Germany’s biggest export market, to shrink 0.5% this year before growing by 1.0% in 2014. The German economy will expand 0.4% this year, according to the Bundesbank. In China industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, although China is still seen as the global economic engine. Fitch lowered Italy’s sovereign rating to BBB+ from A- with a negative outlook, according to a statement released March 8. That’s three levels above junk and one higher than Spain. Italy’s 10-year yields climbed five basis points, or 0.05 percentage point, to 4.64%. Germany’s 10 yr bund at 1.51% on Friday, this morning 1.52%. In the US the decline in unemployment and strong increases in non-farm payrolls and private sector jobs surprised about everyone on Friday, (non-farm jobs +236K, non-farm private jobs +246K). The decline in the unemployment rate to 7.7% isn’t as positive as it appears, many simply not looking for a job, that eliminates them from the employment sector. On balance the Feb employment data was much better than had been thought sending interest rates up along with stock indexes. There is little reason now to expect interest rates will decline much on any rallies.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Wow! Holy Moly Batman! This morning’s Feb employment report blew the doors off all the forecasts; it is after all the employment report that is most always a shock of some kind. The unemployment rate in Feb declined to 7.7% frm 7.9% in Jan and down 0.1% more than thought. Non-farm jobs increased 236K, consensus was 171K; non-farm private jobs increased 246K, consensus +195K. Non-farm jobs now at the highest since last Nov and the unemployment rate the lowest since Dec 2008. As we noted yesterday, employment reports don’t usually come close to forecasts, thus we normally have a lot of volatility when the data is reported. The revisions to previous reports; Dec revised up 23K, Jan revised lower by 38K. Today’s report showed factories added 14,000 workers in February, compared with a projected 9,000 advance and following a 12,000 increase in the previous month. Auto manufacturing, reflecting car and truck sales, running close to the best pace in five years. Employment at private service-providers jumped 179,000 last month. Construction companies added 48,000 workers, reflecting a 17,100 gain in payrolls at residential trade contractors. Retailers took on 23,700 employees. At 9:00 this morning the 10 yr note yield climbed to 2.08%, the highest rate in over a year, and finally takes the bullish bias away from those still holding that rates would decline. 30 yr MBSs at 9:00 -39 bp frm yesterday’s close. The strong employment report also brings the Fed back into focus in terms of ending its QE sooner than what was thought just 24 hours ago. One more month of strong employment data in March will likely cause the Fed to begin planning in earnest its gradual reduction of monthly Fed purchases of MBSs and treasuries. The report sent Europe’s stock market higher and the US key indexes up; at 9:00 the DJIA futures were up 100 points frm yesterday’s close; the S&P traded just shy of its all-time high. At 9:30 the DJIA opened +68, NASDAQ +15, S$P +7; 10 yr note 2.07% +7 bp and 30 yr MBSs -19 bp frm yesterday’s close. By 10:00 markets haven’t changed much from early trading; stock indexes actually lower than at the open. The 10 yr note at 2.06% down frm 2.08% on the initial reaction to employment data. This week has not been good for the interest rate markets, either fundamentally or technically. The bond and mortgage markets are in new low territory on prices and new highs for yields on the recent move higher in rates. Hard to find anything good this week unless one looks at their 401K, stock indexes continue to climb. The DJIA making new highs everyday while the broader market, the S&P 500 still not yet in new high territory, 1565 is the current all-time high, trading at 1546. There is a strong possibility markets will reverse their direction by the end of the day; however it would not change the bearish momentum in the interest rate markets in the wider perspective. Since the open key indexes have lost ground and rate markets are off their worst levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims this morning were better than forecasts, claims declined 7K to 340K with estimates for an increase of 11K. The 4 wk average now at 348K, suggesting that the employment sector while still weak is getting better---slowly. Claims today declined to a six week low. People collecting emergency and extended payments decreased by about 225,400 to 1.78 million in the week ended Feb. 16. The reaction added to stock index futures that prior to the 8:30 report were flat. The interest rate markets sold off on the news taking the 10 yr note to 1.97% at 9:00, up 3 bp frm yesterday’s increase of 4 bp in yield. 30 yr MBS prices at 9:00 -21 bp frm yesterday’s decline of 26 bp. Other data at 8:30; Q4 productivity revision -1.9% frm -2.0% originally reported. Q4 unit labor costs +4.6%; weaker productivity generally increases unit labor costs. January US trade deficit at -$44.45B slightly higher than expected. The three reports didn’t cause any movement in markets, it is all about the decline in weekly claims this morning. At 9:30 the DJIA opened +18, NASDAQ +2, S&P +1; 10 yr note 1.97% +3 bp, 30 yr MBSs -21 bp. In Europe both the Bank of England and the ECB left their interest rates unchanged. There were a few out there thinking the ECB might lower rates. Europe’s stock markets were supported today on the Fed Beige Book released yesterday afternoon saying the US economy is growing. European Central Bank President Mario Draghi said data suggest the region’s economy will stabilize this year. Draghi’s comments pressured German bunds, the 10- year bund yield climbed three basis points to 1.49%. On the political front; the President picked up the dinner tab last night for he and 11 top Republicans, he invited them in a gesture to resume talks on long term deficit reduction. This afternoon he will lunch with Paul Ryan, Ryan is chair of the House Budget Committee. The President isn’t giving up on tax increases matching spending cuts, Republicans still staunchly saying no tax increases. At least they are eating well these days. The rest of today should be relatively quiet with the Feb employment report out at 8:30 tomorrow. The report is historically volatile, it more the norm that the data will not meet the forecasts in either direction than estimates on target. The report usually leads to high volatility in markets. The current “consensus” estimates are for non-farm payrolls +171K, non-farm private jobs +195K, the unemployment rate at 7.8% down frm 7.9% in Jan. The outlook for lower interest rates has faded quickly, as long as equity markets continue to draw money in the bond market has little chance of improving. Since last Friday the 10 yr note yield as of 9:30 today has increased 13 basis points in yield, 30 yr MBSs have lost 67 bp in price and up 6 bp in yield. Technically the 10 yr and 30 yr MBSs have lost all of the momentum that we had last week. We have noted numerous time her that we don’t expect interest rates to decline much, especially with US and global equity markets rallying. The Feb ADP private jobs report yesterday better than expected has encouraged traders to increase the forecasts for tomorrow’s BLS employment report. Europe, China and in the US central bankers have been but with more optimistic outlooks, investors turning away from low return fixed income investments. The stock market is technically overbought and due for a pullback; when it actually does occur the bond market will see some improvement but not much. The bellwether 10 yr is very unlikely to fall below 1.85% at best. Any improvement in the rate markets should be seen as opportunity and not the beginning of any major change in sentiment.

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Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com It isn’t good for interest rate markets when the stock markets are on a rampage higher, that of course should not be news. Yesterday the DJIA made a 200 year high, this morning in early trading in futures markets the key US indexes were adding to yesterday’s gains and US interest rates are higher. From a technical perspective we warned a couple of days ago that the 10 yr note was finding strong resistance at 1.85%, trying five times in six sessions and failing; all momentum oscillators had moved to overbought levels, and the MBS price finding resistance at key chart points and unable to break above its 40 day average. Taking a broader, more general look at mortgage rates; going back to Jan 25th 30 yr mortgage rates have changed very little. In terms of price 30 yr MBSs have traded in a 100 basis point range and about 10 basis point rate range. Rather tame when viewed in the wider perspective. At 8:15 this morning ADP payroll people released its data on non-farm private jobs, better than what had been forecast. ADP said private jobs grew by 198K in Feb and Revised the Jan growth from +192K to +216K. The better report is in line with the estimates of private jobs from the BLS on Friday (+195K), the estimate for all non-farm jobs is +171K indicating markets are expecting more cuts in government employment. The unemployment rate in Feb is expected at 7.8% frm 7.9% in Jan. At 9:30 the DJIA opened +41, NASDAQ +8, S&P +4. 10 yr note -11/32 at 1.94% +4 bp and 30 yr MBS prices down 25 bp. At 10:00 Jan factory orders were expected -2.2%; orders about right on, -2.0%; no reaction to the report as usual. This afternoon at 2:00 the Fed will release its Beige Book, the Fed’s economic report from the 12 Fed districts. More detail by region but generally nothing surprising in the report. The Book is used by the FOMC when it meets in two weeks. The weekly MBA mortgage applications increased last week after declines in the previous three weeks. The overall composite index +14.8%; purchase index +15.0% and the refinance index +15%. The gains reverse a run of prior declines to lift the purchase index back to where it was in early February and the refinance index back to where it was in mid-January. Last week rate market declined, doesn’t take much to motivate buyers these days. The high percentage gains though are gains compared to the last few weeks of declines in apps. Yes, the DJIA made a new high yesterday but it isn’t a new high when adjusted for inflation. To make an inflation adjusted high the DJIA has to go up another 8.0%. The average stock price earnings ratio is 14, 20% less than when the stock market was at its high in 2007. Based on that and the inflation adjusted level the index has a lot further to go if one assumes earnings will be as good as in 2007. Longer maturity treasuries (10 yr note) are setting up another wide range similar to the 10 bp yield range that held the rate in check from late Jan until late Feb (2.05% - 1.95%); the new range on the note 1.95% - 1.85%. Our longer range outlook remains the same; interest rates won’t increase much frm present levels, and will not fall much either. There is little reason now to expect another big decline in rates. The forecasts echoed by a few that the 10 yr may decline to 1.50% and mortgage rates down 25 bp frm here are likely to be disappointed. With the Fed supporting rates with the QEs investors want more return; the equity markets are the only markets where higher returns are potentially possible.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to the actual open at 9:30, the DJIA futures was trading in new all-time high, the 10 yr -6/32 at 1.90% and 30 yr MBSs -6 bp frm yesterday’s close. At 9:30 the DJIA opened +34 just a few points shy of the record then jumped over it a few minutes later; now it is all about the close; at 9:45 the DJIA index was the highest in the 200 yr history of the index. The NASDAQ opened +20, S&P +7; the 10 yr note yield at 9:30 -4/32 at 1.89% +1 bp, 30 yr MBS price -3 bp frm yesterday’s close. Four times in the past five sessions the 10 yr note yield fell to 1.84%, four times it has failed to break below and the yield increased. Yesterday the 10 declined to 1.84% failed and closed at 1.88%. 30 yr MBSs also failing at critical resistance levels; unable to move above its 40 day average and failing to break high prices going back to Jan 25th. Both markets are overbought based on momentum oscillators. This morning prior to the 9:30 open the S&P traded at a new high for the five year rally. US financial markets are at critical levels; technically and fundamentally. Interest rates stuck in a narrow range and not likely to decline much; the stock market about to make new highs today. Meantime the President is backing off from the doomsday forecasts of the sequester; no one believes the pronouncements of 170K jobs about to be lost, or that air planes won’t fly. Are there any bears still in the stock market?, any bulls in the bond market? When everyone gets on one side of the boat, the odds of tipping over become very high. China is moving toward slowing growth to 7.5%, concentrating on domestic spending at home and less on global exports. 7.5% growth is very strong but well off double digit growth over the past few years. Property values have exploded in China, the government is set now on new controls to control and tame the sector. The country facing an inflation bubble in property values that according to it’s leaders will lead to overall rampant inflation. Prior to the US service sector index this morning, in Europe the sector declined but not as much as expected. Retail sales in Germany were better than expected, up 3.1% and helped drive the EU sales up 1.2%. The jobless rate in the euro area rose to a record in January, climbing to 11.9%, data showed on March 1. Still, economic confidence in the euro area increased more than economists forecast in February. All European and Asian stock markets are better today. With global equity markets rallying today it is interesting that there is no major selling in the US treasury markets; prices are lower and rate higher this morning but only slightly. The Fed’s plan to continue its $85B of purchases of treasuries and mortgages is supporting any major increase in rates presently. Also, although this morning the stock market is pushing new highs, there is still a lot of conviction the US stock markets are due for a pullback. The only data today, the Feb ISM services sector index expected at 55.0 frm 55.2 in Jan. More fuel for the stock market; the index increased to 56.0, the highest since Feb 2012. The employment component however did slip a little, frm 57.5 to 57.2, still above 50 indicating expansion. The reaction sent the DJIA to new interday highs. The 10 yr and MBSs saw little reaction to the report.

Mortgage Rates

Mortgage Raes Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early today a slightly better open in the US bond and mortgage markets but by 9:00 the gains were erased with the 10 -3/32 at 1.86% after trading at 1.84% early this morning; 30 yr MBSs at 8:30 +6 bp, at 9:00 -3 bp . Stock index futures trading pointing to a lower opening at 9:30 but not much; fell on concern changes in China’s government policy may slow growth and hurt the global recovery. China cracking down on exploding real estate prices; the government ordered stricter real-estate curbs and service industries’ growth slowed. The Shanghai index fell the most in 3.5 years on the report. At 9:30 the DJIA opened -27, NASDAQ -10, S&P -4; 10 yr note -3/32 at 1.86% +1 bp after 1.84% earlier this morning and 30 yr MBSs unchanged frm Friday’s close. There are no economic reports today. The DJIA is still trying to break into new all-time highs, not yet able to break it. Last Thursday the index came within 40 points of the high but failed and backed away; the high is 14,164, the index closed Friday at 14,090. This is employment week; Friday the Feb employment data, according to early estimates, will sow non-farm jobs increased 171K with non-farm private jobs up 195K and the unemployment rate down to 7.8% frm 7.9% the last couple of months. Meantime on Wednesday ADP will report its private job growth at +173K. The Fed continues to debate the QEs; Janet Yellen, the Fed’s vice chairman saying the Fed should press on with $85B in monthly bond buying while tracking possible costs and risks from the unprecedented program. “Turning to the potential costs of the Federal Reserve’s asset purchases, there are some that definitely need to be monitored over time,” Yellen said today. “At this stage, I do not see any that would cause me to advocate a curtailment of our purchase program.” … “At this stage, there are some signs that investors are reaching for yield, but I do not now see pervasive evidence of trends such as rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would clearly threaten financial stability.”… “Ending asset purchases before observing a substantial improvement in the labor market might also create expectations that the amount of accommodation provided would not be sufficient to sustain the improvement in the economy.” ….“Moreover, a weakening of the economic environment could also create significant financial stability risks.” A few others at the Fed are not so sure; Fed Governor Jeremy Stein said last month that some credit markets, including leveraged loans and junk bonds, show signs of overheating. Kansas City Fed President Esther George has warned that prices of some farm land have hit “historically high levels.” Sequester took affect Friday; after weeks of scaring hell out of everyone with dire comments of 170K job losses, delayed airline flights, the military stripped to the bone of readiness and teachers on bread lines; now that it has happened more clear headed comments are emerging from the White House saying it will take months to implement the required cuts…not so dire considering in the end while cuts will likely occur there are more realistic ways of implementation than what had been touted. One thing that could be done is to allow agencies to re-budget and eliminate the hard detailed specifics built into the legislation. You don’t cut a budget by starting with firing the president and management (teachers, air traffic controllers, construction workers), you start with cutting fat, and in Washington there is plenty of that. The end game though is that there will not likely be many that will lose their jobs. Not a good idea for either political party. Coming next; on March 27th the government will be out of money…again. This month will have plenty of volatility as our “leaders” work to avoid a government shutdown that will furlough many government workers. The bellwether 10 yr note is holding at 1.85% so far after 4 attempts unable to break the now strong resistance level. Both the bond and mortgage markets are registering overbought level based on the momentum oscillators suggesting the possibility of consolidation at these levels with potential increases in rates. That said we remain constructive over the longer view; however, as we have noted here, we are not expecting interest rates will decline much more frm current levels….maybe 10 more basis points in yield for the 10 yr note.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock indexes failed to run to new highs (DJIA) yesterday, getting to 40 points of a new all-time high the index failed and selling took the index back to 110 points frm a new high. Early this morning in pre-market trade the DJIA -63. At 8:30 Jan personal income, thought to be -2.4%, declined 3.6%; personal spending was right on estimates +0.2%, Dec spending revised to +0.1% frm +0.2%. Dec income unchanged frm original data, +2.6%. The decline in income somewhat of a surprise but there was no reaction to the lower income in markets. The decline in income, the most in 20 years, was likely due to businesses paying bonuses and dividends earlier than usual to avoid increases in taxes that kicked in Jan which is normally a strong month for incomes. The decline in income cut the savings rate to 2.4%. US bonds and MBSs rallying this morning on weak stocks and soft data out of Europe showing unemployment increased and manufacturing declined. The German bund at its lowest rate in two months as investors seek safety; 1.41% reflecting increased concerns in the EU with Italy’s messy election and economic data worsening. Unemployment increased to 11.9% in Jan, the highest since 1995. In the US the 10 yr note yield at 9:00 sat at 1.86% down 3 bp and at its first technical resistance hurdle. MBS prices at 9:00 +12 bp for 30 yr mortgages. At 9:30 the DJIA opened down 40, NASDAQ +16, S&P -6; 10 yr note 1.86% -2 bp; 30 yr MBS price +17 bp frm yesterday’s close. The U. of Michigan consumer sentiment index at 9:55, expected at 76.0 frm 76.3, the index was up to 77.6 and mirroring the increase in the consumer confidence index reported on Monday. The national ISM manufacturing index at 10:00 expected at 52.8 frm 53.1, the index increased to 54.2. The index the highest since June 2011; all the interior components also better than thought. The initial reaction improved stock indexes, at one point about 9:45 the DJIA was off over 100 points, at 10:05 -49 points. January construction spending also at 10:00, expected +0.6%, declined 2.1%. Quite a surprise, Dec spending was revised to +1.1% from +0.9%. This is sequester day, the day that has been characterized by many that the US starts an economic decline; layoffs, increased unemployment, 1000s of flights canceled, construction workers in the military sector all unemployed, thousands of dilapidated bridges will collapse, teachers jettisoned, children with no early education or child care----and the list goes on. Baloney! The sequester is a serious issue, however those scare tactics are ridiculous. Most of the dire forecasts will not occur; a ploy that has been the hallmark of any legislation for the last four years, the sky is falling strategy employed in Washington in place of sound debate to resolve many growing problems. Use the media, people will believe anything from media. According to the latest poles, only one in four actually know much about the sequester other than what they are fed. Certainly markets don’t care much and ignore the politicking and grandstanding. The more serious issue is on Mach 27th, the government will run out of money. If so a government shutdown will occur. Expect the next few weeks to be littered with mud, the President adding to his frequent flier miles, and Republicans attempting to appeal to tea party far out right wingers. The 10 yr note is trading at its first level of resistance at 1.85%. Three times this week the note fell to that level but was unable to break through. A break below will set up a run to 1.81% where the 100 day average resides. Still holding that rates will decline but also that they won’t decline much more than 1.75% on the 10 unless the EU trips into more trouble. Continue to expect increased volatility in the equity arena and in urn in the bond markets.