Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early today the 10 yr note was better with the yield down to 2.47% down 1 bp frm yesterday; it didn’t last however, at 8:30 the 10 yr yield increased to 2.50% with US stock indexes working lower early after the strong improvements over the last few days. Mortgage prices at 9:00 -20 bps frm yesterday’s close. At 9:30 the DJIA opened -72, NASDAQ -11, S&P -6. 10 yr at 2.54% +6 bp and 30 yr MBSs -50 basis points. No real let up in underlying volatility, and it will continue through next week at least. Over the last couple of days, and after the shock to markets frm Bernanke’s comments last week, Fed officials are out to cool off the fears. Three Fed officials yesterday making comments that the Fed was still uncertain about what will happened with the QEs. Bernanke last week said the Fed would begin to taper by the end of the year pending how the economy performs. The Fed’s outlook for the economy is optimistic, that the economy is recovering and the Fed will begin backing away. Since that remark the markets convulsed into panic; interest rates increased, the stock market fell---both on significant moves. Then it was the Fed’s turn to be shocked, Bernanke’s remarks were not expected to crash markets and set of the volatility. Now the Fed is out attempting to calm markets with less hawkish comments from the likes of NY Fed Pres. Dudley yesterday and other Fed officials out making speeches. There has been some relaxation in the bond market, the 10 yr note yield has declined from 2.65% to 2.50% early this morning but the bearish bias remains intact. Unless the US and global economies reverse and weaken the bond and mortgage markets are not likely to improve much. It is all about how the economy performs in the coming months; Bernanke made it clear in his remarks last week that the Fed’s actions moving forward is dependent on data measuring the economy’s performance. Initially no ne chose to focus on that aspect, setting off the hysteric moves last week. Now some balance being worked into the equation, but not much and the market volatility will continue with wide swings. Don’t allow yourself to believe rates will fall much; the trend is for higher interest rates, or at best trade at present levels. Bottom line: the Fed believes the economy is improving, the track record at the Fed on economic forecasting isn’t stellar by any means and markets know it. Taking the interest rate forecasts to its lowest denominator in terms of outlook---it all depends on the economy. Our view, the economy isn’t as strong as the Fed thinks, if we are correct interest rates should stabilize at present levels. That said, it isn’t our view or the Fed’s outlook that is important it is what markets think. Two data points this morning; at 9:45 the June Chicago purchasing managers index, expected at 55.0 frm 58.7 in May, the index declined to 51.6. The decline is counter to the increases seen in other regional indexes as most have been better but Chicago isn’t Richmond, there are many more manufacturing operations in the Chicago region. The reaction sent stock indexes down more but didn’t do lot for the bond and mortgage markets. At 9:55 the final June U. of Michigan consumer index was expected at 83.0 frm 82.7 at mid-month, the index increased to 84.1. The final reading for the May index was 84.5 so on a month to month view the index declined. The report sent stock indexes down more, but didn’t improve the bod and mortgage markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages traded better this morning prior to 8:30 economic data. The 10 yr note at 2.49% -5 bp, 30 yr MBS prices +24 bp frm yesterday’s closes. Weekly jobless claims were expected -9K, as reported down 9K to 355K; the 4 week average declined about 2800 frm last week. May personal income expected up 0.2% increased 0.5%, personal spending expected +0.4% was up 0.3%; April spending originally reported -0.2% was revised to -0.3%. The personal consumption expenditures and inflation gauge increased 0.1%, yr/yr +1.1%. Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.2% in May after a 0.1% decrease in the previous month, The two reports generally in line with estimates didn’t generate any immediate changes in the stock indexes or the bond and mortgage markets. At 9:00 this morning the 10 yr at 2.50% -5 bp, 30 yr MBS prices +30 bps. At 9:30 the DJIA opened +87, NASDAQ +20, S&P +10; 10 yr 2.49% -6 bp and 30 yr MBS price +35 bps frm yesterday’s close. At 10:00, a few minutes ago, NAR reported May pending home sales, expected +1.0% sales were up a huge 6.7%. Pending home sales are contracts signed but not yet closed. Not much reaction to the better report so far. After last week’s wild selling the bond market is settling down at slightly lower rates but the overall bias remains bearish for the bond and mortgage markets. Bernanke’s press conference last week shocked financial markets here and around the world. No one expected he would be as definitive as he was; saying the Fed was ready to begin tapering its QEs as early as the end of this year and would likely be completely done with it by mid-2014. Markets were expecting the Fed’s next move would be to begin backing off of its $85B of monthly purchases of treasuries and mortgage securities but the time frame wasn’t expected to be that soon. Bernanke said the outlook for the economy was improving and as long as the future data confirmed that the easing’s would end. The initial reaction to his comments sent interest rates higher and dropped the stock market in excessive movements. Since then the DJIA has recovered, after falling 800 points the index has increased 200 points since Tuesday and so far this morning up another 130 points. The 10 yr note rate, driver for all long term interest rates, increased from 2.30% prior to Bernanke’s comments to 2.65% and 30 yr MBS rates increased 25 bps in a matter of a few sessions. Some retracements in markets was likely and is being motivated by comments frm other Fed officials and central banks from the ECB to the Bank of China in efforts to calm markets. We warned market volatility would increase and will likely be touchy now until the June employment report scheduled for July 5th. Most volatility will be in the bond and mortgage markets; with rates historically low it isn’t realistic to expect interest rates will decline to the lows seen just a month ago. The question now is, how much of an improvement can be expected? A couple of Fed officials out today; at 10:00 NY Fed Pres. Dudley. At 10:30 Fed Governor Powell talks. Dudley saying the market’s interpretation of the Fed’s intentions are not accurate; another voice trying to temper the recent shock of increased rates. He wasn’t talking about the increase in the 10 yr note, but more about short term rates which as far as we are concerned weren’t the issue. The Fed will keep the FF rate at 0.0% to 0.25% until the unemployment rate falls to 6.5% and that appears to be a long way off. He said as long as the Fed continues to buy the 10 yr note should not be any higher than 2.50%. The markets are “quite out of sync” with the Fed’s policy. Bill Gross of PIMCO fame out this morning saying the 10 yr note should be down to 2.20% (2.49% now). Gross, a man of respect has been wrong recently about the bond and interest rate markets. A month ago Gross saying that PIMCO was divesting of some of its fixed income treasuries, then a couple of weeks ago he turned buyer just before the spike higher; now talking up his confused position that rates should be 30 basis points lower on the 10 yr. We talk a lot about uncertainty that presently dominates the markets; Gross typifies what we mean by uncertainty and volatility that is the present state in the interest rate markets. The bond and mortgage markets, based on all momentum oscillators became oversold and now undergoing a retracement. Rate markets remain bearish in the wider perspective; in the near term there is excessive intraday volatility that implies that uncertainty is dominant in the markets. The last few days the movements through the day have been huge; MBSs opening better then selling back and finally at the end of the day ending close to unchanged from the previous day. Re-pricing frm lenders has become a daily occurrence both up and down. Volatility like this is indicative of uncertainty about where rates should be under the present ever-changing outlooks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com As noted here, we have talked about volatility that would dominate markets the next couple of weeks. today a good example; yesterday MBS prices fell 33 bp on the day, this morning the 30 yr 3.5 FNMA coupon at 8:30 +73 bps. All about data points and markets were surprised (again) when at 8:30 the final read for Q1 GDP reflected the economy was not nearly as strong in Q1 as was widely believed. The overwhelming expectation was Q1 would be +2.4% unchanged from the preliminary report last month; as reported the economy grew at just 1.8%. The reaction sent 10 yr note yield down to 2.52% frm 2.60% yesterday, and spiked MBS prices higher. The weaker growth in Q1 has turned speculation that the Fed would begin tapering in Sept into turmoil. As we noted, it is all data dependent on how and when the Fed would begin to end its market support; Bernanke made that plain when the surprised the markets with his comments that he was ready to begin the end of Fed market support. That part of his remarks was swept under the rug by markets that focused only on his remarks that the Fed would rapidly wind down its support and be completely out by mid-2014. The softer than expected Q1 growth will change some of those outlooks that have driven interest rates higher recently. Most of what we had been hearing from analysts and economists were forecasting a slowdown in Q2 that ends Friday, and that corporate earnings would be down from Q1. If those forecasts hold the take away has to be that the Fed isn’t likely to taper as soon as what had been expected until this morning. It is still a bearish bond and mortgage market however the selling binge will likely lessen somewhat. The weakness in Q1 was due to less consumer spending that accounts for about 70% of GDP growth. Household purchases were revised to a 2.6% advance compared with the 3.4% gain estimated last month. Households cut back on travel, legal services and personal care expenditures and also curbed spending on health care as the two percentage-point increase in the payroll tax caused incomes to drop by the most in more than four years. Disposable income adjusted for inflation fell at an 8.6% annualized rate, the biggest drop since the third quarter of 2008. The immediate reaction from the bullish camp was that the second half of the years would see consumer spending increase---hope is what markets are living on these days. Mortgage applications decreased 3.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 21, 2013, the lowest level since November 2011. The Refinance Index decreased 5.0% from the previous week to the lowest level since November 2011. The seasonally adjusted Purchase Index increased 2.0% from one week earlier, and was 16% higher than the same week one year ago. The refinance share of mortgage activity decreased to 67% of total applications, the lowest level since July 2011, from 69% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The government share of purchase applications dropped to 28%, the lowest level in the history of this series. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.46%, the highest rate since August 2011, from 4.17%, with points decreasing to 0.35 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.52%, the highest rate since March 2012, from 4.23%, with points decreasing to 0.28 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.20%, the highest rate since August 2011, from 3.85%, with points increasing to 0.40 from 0.22 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.55%, the highest rate since November 2011, from 3.30%, with points increasing to 0.43 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 3.06%, the highest rate since October 2011, from 2.81%, with points increasing to 0.39 from 0.35 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +89, NASDAQ +28, S&P +9; 10 yr note at 2.52% -8 bp and 30 yr MBS price +82 bps. At 1:00 this afternoon Treasury auction $35B of 5 yr notes; yesterday’s 2 yr auction was not well bid. In Europe the stock markets rallied that added to it when Q1 US GDP hit on relaxed concerns of an early exit by the Fed. A German consumer confidence gauge for July rose to 6.8 from 6.5 in June, Nuremberg-based research company GfK AG said today. That would be the highest since September 2007. Analysts had expected a reading of 6.5. The German 10 yr bund yield fell seven basis points to 1.74% frm 1.85 two days ago. Euro-area bonds rose, led by those of peripheral nations including Italy and Spain as European Central Bank President Mario Draghi said monetary policy will stay accommodative, boosting the appeal of fixed-income assets. Today’s fall in US interest rates is a welcome move; that said the technicals remain bearish. The 10 yr and MBSs could rally a lot more and still not change the bearish outlook. The 10 yr would have to fall to under 2.35% the 3.5 July FNMA coupon price would have to exceed 102.50---presently 100.64. Today’s weak Q1 GDP report is adding support to the bond and mortgage markets that maybe the Fed will not be moving as quickly as had been thought to unwind its easing. That said, although Q1 was softer, it is to an extent history. The future remains unsure however recent Q2 data has been strong; yesterday May durables were better than expected so too May consumer confidence index and May new home sales. Us this and any rallies to button up deals; interest rates are not likely to fall much frm current levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A nice price reversal yesterday, after being down 107 bps at 9:30 the 3.5 July FNMA ended down just 14 bps; the 10 yr note unchanged at the end of the day at 2.54%. This morning prior to 8:30 the 10 yr yield had fallen to 2.49% (5:00 am); 8:30 brought May durable goods orders better than forecasts. Orders were expected up 3.3% as reported up 3.5%, ex transportation orders were expected down 0.1% but increased 0.7%. Treasures and MBSs lost most of the early gains. At 9:00 April Case/Shiller 20 city home price index was expected up 10.9% frm this time last year, as reported the prices increased 12.1%; month to month prices increased 1.7% with estimates at 1.5%. The April FHFA housing price index was expected at +1.2% but was up 0.7%. Two reports on home prices diverged somewhat but there was not much reaction to either data. At 9:30 the DJIA opened +71, NASDAQ +30, S&P +9. 10 yr at 9:30 2.54% unch and 3.5 30 yr Fannies +27 bps. Three important data points at 10:00. May new home sales were expected +1.3% increased 2.1% to 476K the best level since June 2008, April new home sales were revised to 466K frm 454K; the median sales price increased 10.3% yr/yr to $263,900.00. The supply of homes increased to 4.1 months frm 4.0% in April. June consumer confidence was expected at 75.0 frm 76.2 in May, the index jumped to 81.4 the best level since Jan 2008. The regional Richmond Fed manufacturing index increased to 8.0 the best since last Nov. The three reports sent interest rates higher and prices lower for mortgage-backed securities. This afternoon Treasury will kick off this week’s auctions with $35B of 2 yr notes; recent 2 yr auctions have not been as strong in bidding as the average of the last 12 2 yr auctions. Tomorrow $35 of 5 yr notes and Thursday $29B of 7 yr notes. Today’s data may confirm that the Fed’s outlook on the economy may be correct after all and it adds more to the belief that the Fed will begin to reduce its monthly buying o mortgages and treasuries by the end of the year. The 10 yr note rate prior to the 10:00 data was abut unchanged at 2.55%, at 10:10 the rate increased to 2.58%; 30 yr MBSs prior to 10:00 +20 bp, at 10:10 -10 bps. No other way to look at the bond market, it is seeing continued selling and technically quite bearish on all our models.

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 to the week with interest rates continuing to increase; at 9:00 the 3.5 July FNMA coupon -111 basis points from Friday’s 100 basis point fall. The 10 yr note at 2.61% at 9:00 a little better from earlier when the yield hit 2.64%. The rate is now as high as in 2011 before the Fed’s QE took hold. The stock market in the futures markets at 9:00 reflecting a decline of 136 points on the DJIA. There are no economic reports today but this week is heavy on key data points and Treasury auctions totaling $99B. Markets this morning reacting to concerns in China as well as Bernanke’s statement last week. China’s central bank said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion, signaling no relief from a cash squeeze. Chinese equities entering a bear market on concern a cash crunch will hurt the economy. Bonds dropped around the world on mounting speculation the U.S. will begin curbing stimulus, while commodities declined and the dollar strengthened. US and global markets in pure panic these days; markets were completely unprepared for the rapid increase in interest rates and China’s economy falling. Given the present swift fall in US and global equity markets and the speed in which interest rates have increased is clearly evidence that between Bernanke’s comments last week and the credit crunch in China markets were caught by surprise; since last week it has been mostly reaction rather than action predicated on changing fundamentals. The US 10 yr note rate since May 3rd has increased 61% on its yield and 30 yr mortgages up about 45%. A report this morning frm a survey conducted by Bloomberg is a telltale sign that economists are confused and over the top in our view; saying the Fed will cut its purchases of treasuries and MBSs by $20B a month in September. We believe that is too radical and still depends on the data between now and then. While the economy is slowly improving we have yet to see the data that supports such a forecast. The Fed’s withdraw frm the stimulus is unlikely to be that swift and that deep in the time frame of Sept. Nevertheless, it appears based on the way markets are presently reacting that the fear is mounting. At 9:30 the DJIA opened -131, NASDAQ -36, S&P-17. The 10 yr at 2.64% and 30 yr MBS prices down 107 bp and FHA price down 135 bps. All global interest rate markets are climbing right along with US treasuries as the end approaches for central banks’ support of economies around the world. Once that sunk n last week it has been a stampeded out of fixed income investments and stocks momentarily. We have had some questions recently about where the money is going; out of fixed income and moving away from equities these days. Money doesn’t have to be invested all the time; likely a lot of it is sitting in accounts with no risk until more orderly markets can be sustained. How much more increase is in the cards? Not an easy answer now with current market volatility. Economic data is always critical to markets, the next two weeks the data takes on even more importance with the Fed considering ending the QEs. Whether the Fed does move rapidly, or at a less aggressive pace that is now fueling the markets, depends on incoming data and the June employment report in two weeks. This week the data calendar has numerous reports on the housing sector, the strongest segment of the economy. In the meantime we expect volatility will remain high. Use any improvements to get deals consummated.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com After a 550 point decline in the DJIA in the last two days, this morning the index is opening slightly better. Global stock markets mixed today, some better some worse but overall not much change in any global equity markets after the Bernanke shock on Wednesday. The world is facing the possible end of central banks driving markets and having now to adjust to the real underlying fundamentals. After years of Fed money printing and low interest rates the new question, one that has been pushed under the rug for four years, what is the real status of the US and global economies? Taking away the blanket of comfort is always a chilling; now markets and economists have to actually look at the economic outlook from the perspective of reduced stimulus. What exactly is the consumer capable and willing to do with spending, what will small business do about employment as interest rates increase, what is the real fair value of stock prices when the stimulus is subtracted? Lots of questions with no significant answers at the moment. At 9:30 the DJIA opened +78, NASDAQ +8, S&P +7; 10 yr at 2.44% +3 bp and 30 yr MBS price +13 bp frm yesterday’s massacre. Wednesday Bernanke shocked the financial world when he surprisingly defined what and when the Fed would do; up to that point it was all speculation frm Fed watchers and even within the Fed itself. Now the gauntlet has been laid; at least it has been outlined. Don’t overlook that Bernanke also said that the actual actions by the Fed to begin unwinding the stimulus was dependent on the economy, presently the Fed believes the economy is on the road to recovery although slowly. That Fed view led to Bernanke’s decision to begin the tapering. The Fed’s track record on economic forecasting isn’t any better than private forecasts just because it is the Fed, so while the momentary outlook for interest rates has become more bearish it isn’t cast in stone unless the Fed’s economic outlook is proven correct. So, where are we now? For all the talk and forecasts, and the Fed’s actual future actions, it depends on how healthy the economy really is when seen without the central bank supporting investments and low interest rates. Recent economic data overall has been slightly better based only on estimates and forecasts, but we ask this; is employment increasing with new jobs that pay wages at levels that will improve 80% of wage earners? Will businesses continue to report solid earnings and profits as they have in recent quarters? When ObamaCare kicks in in 2014 what impact will it have on individuals and business ( costs will increase)? Presently markets are not thinking about any of it, all market action in the last two weeks has been driven by reducing leverage and making decisions on the fly. Let’s give this a couple of months; we still hold that the economy isn’t as fundamentally strong as what most, including the Fed, believe it is. All said though the present situation based on performance in the markets remains very bearish for interest rates and for equity markets. Our worn moniker, don’t fight the tape is still the best advice and the only way mortgage lender and originators can look at it. Opinions about the future, even two months from now I terms of conviction are as thin as shaved ham at the deli. The 10 yr note is toying with longer term support at the 2.40% levels but presently appears to be failing.

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, after the serious selling yesterday in the bond and stock markets this morning the 10 yr note climbed to 2.43%, up another eight basis points frm yesterday’s increase of 17 bps. Yesterday 30 yr the 3.5 July FNMA coupon price fell 121 bp and GNMA 3.5 fell 177 basis points; the DJIA dropped 206 points. At 9:00 this morning the 10 yr traded at 2.42%, 30 yr MBS price down 57 basis points frm yesterday’s close, the DJIA futures point to an opening down 100 points. Gold crashing, down about $80.00, all global stock markets taking heavy hits. My mother used to say, ‘be careful of what you want, you may get it’; going into the FOMC meeting yesterday and then Bernanke’s press conference markets were clamoring for more clarity from the Fed. For the past six weeks the one constant drum beat within the markets focused on what will the Fed do? Markets wanted clarity. Be careful of what you want, it may not be what you expected; yesterday markets got clarity like a pie in the face and what it markets got wasn’t what was expected….clarity frm Bernanke. Bernanke in his press conference for the first time put details out there about what the Fed will do and when it will do it. Bernanke told the world that the Fed believes the economic outlook is improving and based on the Fed’s forecasts of continued slow improvement (if it continues) the Fed will begin tapering its easing by the end of this year and by mid-2014 all the easing’s will be ended. Shock an Awe panicked markets, interest rates exploded and the US and world stock markets fell like stones. Up until yesterday Fed officials were want to be specific, even Bernanke in his Congressional testimonies recently was reluctant to put specifics out there. Based on the reactions in all markets yesterday so far this morning, markets were not expecting specifics, just more obtuse rhetoric that the Fed is famous for. One thing to keep in mind, Bernanke cautioned that the Fed’s tapering and ending its market support is based on what the Fed believes now, that the economy will continue to improve. If the Fed is wrong, and their track record isn’t much better than all the private estimates, Bernanke made it clear the Fed will keep on with its purchasing of MBSs and treasuries. Economic data, always significant, will have added importance now given the definitive comments frm him yesterday. One thing that is important, Bernanke said the Fed would not sell its MBS securities it holds, a relief because there were increasing concerns the Fed would sell MBSs eventually and add ore increase to mortgage rates. At 8:30 this morning weekly jobless claims were expected to be up 6, as reported claims increased 18K to 354K. The four-week moving average, a less-volatile measure than the weekly figures, climbed to 348,250 last week from 345,750. At 9:30 the DJIA opened -100, NASDAQ -36, S&P -15; the 10 yr at 2.41% +6 bp and 30 yr MBS price -57 bps in price from yesterday’s close. (see below for 10:00 levels). Three key reports at 10:00. May existing home sales expected up 0.5%; sales increased 4.0%, the median sales price $208K, yr/yr sales up 12.9%, the median price up 15.4% yr/yr. The number of days to sell a home down to 39 days compared to 72 days a year ago. May leading economic indicators reported up 0.1% against estimates of +0.2%. The June Philly Fed business index really improved, expected at +1.0 frm -5.2 on the index in May the index increased to 12.5 the best index reading since April 2011; all the interior components were also much stronger than was expected. Even the better data at 10:00 didn’t generate much positive response initially. China appears to be tightening credit by draining reserves to stop predatory lending in the country. China’s seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.7 percentage points, to 10.77%. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85%. Also China’s manufacturing is shrinking at a faster pace this month; a preliminary reading of 48.3 for the Chinese Purchasing Managers’ Index (EC11FLAS) released today by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate. The importance of China’s economy is another reason US stocks are under pressure. The same story; the bond and mortgage markets remain technically bearish as we have noted since the beginning of May. Take all the debate and outlooks frm pundits, analysts, and economists, wad them into a huge ball and toss them in the basket. All you need to focus on is what the markets themselves are doing and right now markets are in turmoil and declining. Doing that will always keep you in line with the markets regardless of what is written or said even by the Federal Reserve. Our forecasts were that the 10 yr would find some support at 2.40%, this morning the note hit 2.47%, it is still in play at 2.40% on a closing basis. That said, estimates as to how high before a rebound are not as reliable as we would like in our analysis. Look for more volatility through the rest of the day. The bond and mortgage markets, as well as the stock market still reacting to the Fed surprise yesterday, a lot of emotional tension today.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets started out today generally unchanged as the world awaits the FOMC policy decision and Bernanke’s press conference this afternoon. It isn’t news that for the last six weeks, since the strong April employment report released on May 3rd that markets have been debating what the Fed may or may not do about cutting back in its QEs. That is about all we have had to think about for over a month now. Today markets’ hope there will be clarity, possibly wishful thinking but hope always springs eternal. QUESTIONS: How will the FOMC policy statement frame the economic conditions and the outlook? Will Bernanke define his view on the economy and interest rate levels? Will he respond to Pres. Obama’s rather surprising comments that Bernanke has spent more time than he wanted at the Fed, suggesting he will not return for another term? What will he have to say about the spike in the 10 yr note yields and mortgage rates over the last six weeks? A lot of questions that have kept markets in volatile movements for too long. Mortgage rates increasing on the drive higher in the rate for the 10 yr treasury note; the housing sector so far not showing much decline but higher mortgage rates frm current levels will have a negative impact on the strongest segment of the economy. The FOMC and Bernanke have a lot to accomplish to clear the air, my thought is that at the end of the day there will be some clarity but won’t be enough to settle markets for very long. The only data this morning was the weekly MBA mortgage applications for last week. Mortgage applications decreased 3.3% from one week earlier, for the week ending June 14, 2013. The Refinance Index decreased 3% from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. The unadjusted Purchase Index decreased 4% compared with the previous week and was 12% higher than the same week one year ago. The refinance share of mortgage activity was unchanged at 69% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 7% of total applications. The government share of purchase applications has been at 29% for the past two weeks, which is the lowest level in the history of this series. The HARP share of refinance applications increased to 31% from 29% the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.17%, the highest rate since March 2012, from 4.15%, with points decreasing to 0.41 from 0.48 (including the origination fee) for 80% loans. This is the sixth straight weekly increase for this rate. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.23% from 4.25%, with points increasing to 0.34 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.85%, the highest rate since April 2012, from 3.81%, with points decreasing to 0.22 from 0.26 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.30% from 3.32%, with points increasing to 0.39 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.81%, the highest rate since June 2012, from 2.78%, with points increasing to 0.35 from 0.30 (including the origination fee) for 80% loans. At 9:30 the DJIA opened -15, NASDAQ -2, S&P -2. 10 yr at 2.18% unchanged; 30 yr conventionals +8 bp and FHA’s -17 bps. Prior to this afternoon’s events the bond and mortgage markets are still technically bearish. To change that the 10 yr note needs to close at or below 2.10% (now 2.17%) and 30 yr 3.5 July FNMA coupon price needs a close above 103.64 (now at 103.37). Both those levels would break their respective 20 day averages, not since May 3rd have either traded below the 10 yr yield 20 day and above the MBS 20 day average price. Over and above all the debate over the economic outlook and what the Fed may do or not that has dominated everything for six weeks, we have to focus on how the markets are trading technically. It isn’t talk that carries weight but what investors and traders are actually doing with their trades that set the tone.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Yesterday afternoon treasuries and mortgage prices were hit on a news story out of the Financial Times saying the Fed will begin tapering as early as three months frm now. Prior to the news story markets were generally unchanged ahead of the Fed policy statement tomorrow afternoon. The FOMC meeting begins today but there will be nothing frm it until tomorrow. Also tomorrow after the release of the policy statement Bernanke will hold a press conference; if between the policy statement and his press conference it doesn’t stop the increase in interest rates the 10 yr note is very likely to climb to 2.40% and mortgage rates up another 20 basis points in rate for 30 yr loans. At 8:30 this morning May CPI was in line with estimates, up 0.1% overall and the core (ex food and energy) up 0.2%. Inflation isn’t an issue these days, well under the Fed’s 2.0% target; yr/yr CPI +1.7%. The recession in Europe and slower growth in emerging markets such as China, combined with restrained wage gains in the U.S., have made it difficult for companies to raise prices. The lack of inflation gives Fed policy makers, meeting today and tomorrow in Washington, more leeway to address unemployment as they consider whether to dial down their record monetary stimulus. May housing starts were expected up 11.0% after declining 14% in April, as reported starts were up 6.8%, still a good number even though less than forecasts. May building permits were expected to have declined 4.0% as reported down 3.1%. Applications to build one-family homes increased 1.3% to a 622,000 pace, the fastest since May 2008. Starts on multifamily projects such as apartment buildings increased 21.6% to an annualized rate of 315,000. At 9:00 this morning the 10 yr note at 2.21% +3 more basis points and 30 yr MBS prices down 17 bps frm yesterday’s close. Stock indexes were pointing to a slightly better open at 9:30. At 9:30 the DJIA opened +31, NASDAQ +7, S&P +2; 10 yr note 2.21% +3 bp, 30 yr MBS price down 16 bp frm yesterday’s close. Nothing now to be concerned about through the remainder of the day; the day’s trading could be choppy as investors and traders position for the FOMC meeting tomorrow afternoon. The bond and mortgage markets remain bearish both from a fundamental point as well as technically. No matter the personal views, do not under estimate the depth of the present bearishness that exists in the interest rate markets. Tomorrow if the FOMC and Bernanke cannot convince markets that the QEs will continue longer than is currently expected the 10 yr will likely move to 2.40% the next technical target. The FOMC and Bernanke will have to down play the idea that the economy is improving and that unemployment is still too high to trigger the Fed to begin tapering. Bernanke will also have to convince markets that when the Fed does begin to slow its purchases it will be very slow in dialing the QEs back. Another increasing concern in the markets; will Bernanke stay for another term if the opportunity is extended to him? Overnight, President Obama commented that Fed Chairman Ben Bernanke has ‘stayed a lot longer’ than he wanted, paving the way for what looks like the Chairman’s exit when his term expires in January. Bernanke has been the driving architect for the Fed’s move to prop up the economy by printing money at a rapid rate (QEs), within the Fed there are wide differences opinion over the effectiveness of continued support for interest rates. Who will replace him? Janet Yellen the Vice Chair, or an outsider? Regardless of the who, the main question that will begin to dominate thinking as the calendar falls is will Bernanke’s polices be continued.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The week started with stock ndexes looking strong ahead of the 9:30 open and interest rates relatively unchanged from Friday’s closes. This week is Fed week with the FOMC meeting ending Wednesday afternoon with the release of the policy statement immediately followed by Bernanke’s press conference where he will face questions on details about his thinking on when or if the Fed is going to begin taking the punch bowl away. IN the last month the view that the Fed will begin tapering has gained a lot of momentum. After the strong April employment report in early May the idea the Fed was about finished supporting the rate markets increased geometrically and rates shot higher catching many investors flat footed as well as most large mortgage companies that were not properly hedged, expecting the fed was going to keep buying. The 10 went frm 1.63% to 2.23% in a month (currently 2.14%). Last week as current economic data was reported slightly weaker than estimates and as the FOMC meeting came closer some of the strong comments that the Fed would begin tapering this summer began to wobble. Easy to have a strong opinion when prior to the Fed’s decisions, as the time closes in though most convictions become less solid. The thought that the Fed will not taper soon has increased as the rate markets have become somewhat disorderly with the constant selling, as rates continue higher some believe the Fed will hang on for now in order to keep mortgage rates frm increasing much more. Increasing mortgage rates, if they were to continue to climb as rapidly as in the last m month, may derail the strongest sector of the economy is supporting the idea the fed will say it isn’t about to reduce the buying in the near future. A very difficult call to make about what Bernanke will say or do; the openness that the Fed has supported for Fed officials to speak their minds has certainly stirred the pot with a lot of different opinions. ….“If you think the Fed or government agencies know what is going on with the economy, you're mistaken. Government economists are about as useful as a screen door on a submarine. Their mistakes and failures are so spectacular you couldn't make them up if you tried. Yet now, in a post-crisis world, we trust the same people to know where the economy is, where it is going, and how to manage monetary policy. Central banks say they will know the right time to end the current policies of quantitative easing and financial repression and when to shrink the bloated monetary base. However, given their record at forecasting, how will they know? The Federal Reserve not only failed to predict the recessions of 1990, 2001, and 2007, it also didn't even recognize them after they had already begun. Financial crises frequently happen because central banks cut interest rates too late and hike rates too soon”…. By John Mauldin Jun 15, 2013, Thoughts from the Front Line. This morning at 8:30 the June NY Empire State manufacturing index was a lot stronger than forecasts; the index as reported jumped from -1.43 (contraction under zero) to +7.84, forecasts were for an increase to 0.5. Global stock markets rallied overnight and US stock indexes were strong at 8:00 pointing to a 100 point increase in the DJIA at9:30, the Empire State index had little impact on the strength of futures trading as orders, sales and employment dropped even though the headline was better. At 9:30 the DJIA opened +109, NASDAQ +29, S&P +11; 10 yr note 2.13% -1 bp and 30 yr MBS price +5 bps. At 10:00 the June NAHB housing market index was expected at 45 frm 44 in May; a huge increase to 52, the first time the index has been in positive territory (over 50) since April 2006 and it is the biggest month-to-month increase in the index since 2002. No immediate reaction to the strong index reading but it does continue to support the expectations for the housing sector. The NAHB data did not mention anything about the increasing mortgage rates. The big gain in the index is attributable to the lack of inventory according to the report. From the technical view the bond and mortgage markets remain bearish with about every study and model we use has yet to improve to even the slightest bullish readings. It isn’t so important now with the FOMC meeting on Wednesday. We are not expecting much change in the bond and mortgage market until at least Wednesday afternoon when the FOMC policy statement and Bernanke’s press conference occur.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Yesterday the bond and stock markets rallied as the FOMC meeting gets closer. For the past month markets have been consumed with the belief that the Fed was about to begin reducing its purchases of MBSs and treasuries. As the meeting approaches (next Tuesday and Wednesday) those “rock solid” beliefs are not so solid. Not unusual when there is a major news event approaching investors and traders lessen their aggressiveness. Yesterday on the Fed primary dealers was out saying the Fed isn’t likely to taper as soon as had the increasing belief; Justin Lederer at Cantor said the Fed would not taper next week. His comment came about 3:30 yesterday and sent interest rates down and prices climbing. This morning the 10 traded down another 3 bps in yield prior to 8:30 when May PPI was reported; the overall PPI increased 0.5% on forecasts of a 0.2% but the core rate excluding food and energy was +0.1%. The initial reaction took a bp from the 10 frm 2.12% to 2.13%, down 2 bp frm yesterday’s close. At 9:00 the 3.5 July FNMA coup[on traded 23 bps in price better than yesterday’s close. At 9:15 May industrial production was expected up 0.2% was unchanged; April production originally reported -0.7% was revised to -0.4%. Manufacturing, which makes up 75% of total production, increased 0.1% in May after falling 0.4% in April. Manufacturing increased in May for the first time in three months, helped by a gain in auto production. May capacity utilization expected at 77.8% declined to 77.6%, April originally at 77.8% was revised to 77.7%. Although not a market mover, Q1 current account balance at -$106.1B was up 3.7% frm Q4 -$102.3B as imports in the quarter increased. The current account is the measure of all goods and services including income payments and government transfers; the forecast was for -$111.3B At 9:30 the DJIA opened -9, NASDAQ -2; S&P -1; 10 yr at 2.12% -3 bp and 30 yr MBS prices +29 bps. The final data this week; the mid-month U. of Michigan consumer sentiment index, expected at 84.5 unchanged frm the final April reading, the index was 82.7. No market reaction to the lower sentiment index. From now until next Wednesday afternoon the markets’ main focus will be on the FOMC meeting, its policy statement and Bernanke’s press conference following the meeting. As the days fall off the perception that the Fed will begin to ease away frm the present MBS and treasury buying is waning a little. Recent data and the unusually swift increase in long term interest rates including mortgage rates may not be to Bernanke’s liking. The debating within the Fed will likely to continue but it is possible the Fed will send a message that any reductions in purchases will not be as soon as had been thought over the last six weeks. Technicals still bearish in the bond and mortgage markets. The 20 day average for the 3.5 July FNMA coupon at 103.91, current price . The 20 day on the 10 yr yield at 2.09%, now at 2.11%. Floating is now appropriate but also has risks attached. If floating it is highly recommended to keep alert to changes through the day, So far today markets are doing well but there is a lot of day ahead.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Japan’s stock market took another huge hit last night taking the Nikkei index down 6.0% and now trading in bearish territory. The reaction sent the US stock indexes down and dropped the 10 yr note yield to 2.18%. Europe’s stock markets also were it hard on the Japanese selling. US economic data at 8:30 stopped the global slide in stock markets although Europe is still weaker; US stock indexes at 9:00 were pointing to an unchanged opening and the improvement in the bond market lost much of its gains. Weekly jobless claims were down 12K to 334K, estimates were for claims to have increased 4K to 350K. May retail sales were expected up 0.5%, sales increased 0.6%; excluding autos sales were expected +0.4%, sales increased 0.3%. Also at 8:30 May export prices declined 0.5%, import prices were down 0.6%, both were expected to be up a little. Global stocks fell, sending the benchmark index to a seven-week low, and the yen strengthened after the World Bank cut its growth forecast. U.S. equity-index futures stayed lower after a report showed retail sales rose more than forecast in May. According to the World Bank the global economy will grow 2.2% in 2013, in Jan the Bank forecast growth at 2.4%. More than $2.5 trillion has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 the central bank could scale back stimulus efforts should the job market show “sustainable improvement.” At 9:30 the DJIA opened -2 after trading down as much as -50 prior to 8:30, NASDAQ -2, S&P -1. The 10 yr at 2.21% -2 bp and 30 yr MBSs +13 bps. It took just three minutes for the DJIA to drop 38 points frm yesterday’s close. At 1:00 Treasury will auction $13B of 30 yr bonds, yesterday the 10 yr auction didn’t see strong demand. So far this morning the stock market continues its downward path; for the first time since last Dec the US stock market has declined three consecutive days. Expect continued volatility today in the stock and bond market. May retail sales better than thought, weekly claims down to 334K and falling import prices down; good data for the economy particularly in the face of the serious selling in Japan’s markets and continued weakness in Europe’s economies all favor the US markets. US treasuries, German bunds and Japanese JGBs all are better this morning after the World Bank cut its forecast for global growth. Investors are still not running to treasuries in any great quantity but also are not selling as much now as we have experienced since the beginning of May. Already today increased volatility in the bond market. Prior to the better retail sales and weekly claims the 10 yr at one point down 6 bps frm yesterday to 2.17% on the Japan stock market decline. Forecasts of softer global growth may support the US bond market but unless the US stock market is perceived to entering a major correction it is unlikely interest rates will decline much frm present levels. Markets believe the Fed is about to begin tapering its QE, that may be seen as either good news for stocks or bad news; good if future economic data improves, bad if data is soft. Next Tuesday and Wednesday the FOMC will meet, markets looking for some clarity frm the group on what Bernanke has in mind. The bond and mortgage market remain technically and fundamentally bearish. We have hung in on floating but so far no improvement and not much decline in prices. Unless there is improvement in the next day or so we will abandon the float suggestion.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Market confusion and uncertainty continue to play out in the financial markets. Yesterday stock indexes fell and the treasury and mortgage markets improved, this morning the stock indexes better and treasuries under some pressure. With increasing concerns that the Fed will begin tapering its easing’s and mixed economic outlooks based on data that hasn’t shown much growth, investors are still being “forced” into equity markets as the Fed continues to keep interest rates so low there is nowhere else to go. The bond and mortgage markets feeling the pain as rates increase, however it was inevitable rates would increase, they really could not go lower frm levels seen earlier this year. At 9:30 the DJIA opened +100 after declining 116 yesterday, NASDAQ +20, S&P +8. The 10 yr at 2.22% at 9:30 up 3 bp and 30 yr MBS price down 11 bps frm yesterday’s close. More mixed data this morning, for the first time in a month weekly mortgage applications have increased frm the previous week. Mortgage applications increased 5.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2013. The Refinance Index increased 5.0% from the previous week. Despite the increase in the refinance index last week, the level is still 11% lower than two weeks prior and 36% lower than the recent peak at the beginning of May. The seasonally adjusted Purchase Index increased 5% from one week earlier. The refinance share of mortgage activity increased to 69% of total applications from 68% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The HARP share of refinance applications fell from 32% the prior week to 29%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.15%, the highest rate since March 2012, from 4.07%, with points increasing to 0.48 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.25%, the highest rate since May 2012, from 4.20%, with points increasing to 0.32 from 0.28 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.81%, the highest rate since April 2012, from 3.76%, with points decreasing to 0.26 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.32%, the highest rate since April 2012, from 3.23%, with points remaining unchanged at 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.78%, the highest rate since June 2012, from 2.76%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans. Earlier this morning the National Federation of Independent Business released its monthly detailed survey frm its members. “The NFIB Index of Small Business Optimism rose 2.3 points to 94.4. This is the second highest reading since the recession started (95.1 is the highest) and the best reading since May of last year, but not one signaling strong economic growth. This is not a surprise given the current state of paralysis in Washington and the still very mixed news on the economy. The Fed has promised to add another trillion dollars to its portfolio, a terrifying prospect to many observers. The federal deficit will be smaller, but still huge and basically financed by the Fed. While the stock market sets records, GDP posts mediocre growth and the unemployment rate remains in the mid-7s. Departures from the labor force, not job creation, contribute to its decline when it does fall. Pessimism about the economy and future sales did moderate, 8 of the 10 Index components gained, but planned job creation fell a point and reported job creation stalled after 5 “up” months. Capital spending was flat as were plans, the inventory picture improved a bit. But, overall, nothing to suggest a surge is underway. No issues on the credit side, most owners have no interest in a loan, regular borrowing activity fell to historic lows and complaints about the difficulties associated with getting a loan fell again. Reports of sales gains were flat. Consumer optimism is up, but it’s not clear why, as incomes and jobs are performing poorly. In early readings, optimism was up for high income consumers and down for low income consumer, perhaps a stock market effect. Not much to hang your hat on. So, we are back to where we were in May, 2012.” There are no key economic data releases today but Treasury will auction $21B of 1 yr notes at 1:00 this afternoon. A key auction for the long end of the curve and for the MBS markets; weak demand will add a little more pressure to the mortgage markets. Yesterday Treasury sold $32B of 3 yr notes that met with weak demand; that however isn’t indicative of how the 10 will go. Technically, the MBS market is skating on thin ice; we have support at 103.00 on a closing basis. This morning the price is trading at 102.99 at 10:00. Suggest keeping alert, so far we have recommended floating for the past two weeks that has not been helpful but not bad either. The 10 yr note, driver for mortgage rates continues to increase. If the 3.5 July FNMA coupon closes under 103.00 we will have to take the medicine and lock any floated loans.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 7:00 this morning the 10 yr note yield was at 2.28% +7 bp frm yesterday’s close; at 9:00 the note improved to 2.24%. US, Europe and Asian stock market all being hit hard today; at 9:00 the DJIA was-115 frm yesterday’s close pointing to a very weak open at 9:30. At 9:30 the DJIA opened -139, NASDAQ -44, S&P -18; the 10 at 2.25% +4 bp and 30 yr MBS price -34 bp frm yesterday’s close. The new concern this morning is being triggered by news frm the Bank of Japan overnight that it left its monetary policy unchanged, markets apparently believed the BOJ would increase its stimulus. In Germany its high court is set to review the legality of the ECBs Outright Monetary Transactions. According to plaintiffs and those opposed to the ECBs bond buying it is against the principle of constitutional democracy. Those asking the high court to rule are saying they know it will roil financial markets but it is necessary to preserve Germany’s democratic constitution and that the ECB independence is not constitutional in Germany. The OMT funds have yet to be used and were originally put in place when Italian and Spanish 10 yr bonds exceeded 7.0% The as-yet-unused OMT foresees potentially unlimited purchases of bonds of debt-stricken countries that sign up to adjustment programs. The BOJ left monetary policy unchanged, the yen is strengthening. Speculation, at least this morning, is that central banks will fail to keep the global recovery on track. Here we have speculation that the Fed is about to begin withdrawing its stimulus; so far all the money printed by the Fed has had only a minor positive impact on our economy. In Europe the ECB left its base rate unchanged when it met a ago. Now Japan, expected to pump barrels of yen into the markets has unexpectedly decided to not increase its stimulus. A news story on Bloomberg this morning saying that interest rate increases will prompt investors in mortgages to sell treasuries as a hedge against losses that are growing in the MBS securities. Late to the party if MBS investors are now just beginning to think about hedging. Last week SF Fed President John Williams said in a speech that he thought the Fed would begin to slow purchases of MBSs as early as this summer. As rates increase, the potential for refinancing mortgage bonds and loan-servicing drops, extending the average lives of the securities and leaving holders more vulnerable to losses. Investors then may seek to pare the duration risk or rebalance existing hedges by selling longer-dated treasuries, mortgage bonds or transacting in interest-rate swaps or options on those contracts, sending yields higher and spreads wider. There is an increasing number of analysts, traders and investors that are beginning to see the light; that when the Fed and other central banks have to end their market manipulation by all the purchasing of treasuries and mortgages it will cause a huge re-adjustment in investor thinking about the future of the stock markets and global interest rates. There are no economic data today except April wholesale inventories at 10:00. The estimate was for inventories to have increased 0.2%, as reported inventories increased 0.2% while sales were up 0.5%. This afternoon Treasury will sell $32B of 3 yr notes, the first of three auctions. Tomorrow $21B of 10 yr notes, the demand will be crucial to how the 10 yr trades. Thursday $13B of 30 yr bonds. Yesterday’s high yield at 2.23% matched its previous high last week; very early this morning the 10 yr shot up to 2.28% setting another breakout into new high rates. We are now hearing the 10 yr may climb to 2.40% before another pause. No forecast from us at this time; we have warned for over a month that rates would increase but until this morning our worst case target was 2.25% for the 10 before a potential rebound. Unless there is improvement today from early morning levels the increasing bearishness is likely to increase as markets now are fully understanding that artificial stimulus frm the Fed and other central banks have distorted normal market functioning. There is always a heavy price to pay once the rug is about to be pulled out from under central bank supports. We have been recommending a strategy of floating as long as the 3.5 June FNMA coupon held over 103.00; this morning it is below the support. Unless there is a rebound by the end of the day, we can’t continue with that idea. So far for the past two weeks we haven’t given up anything by floating, nor have we seen any improvement. There is less reason now to float and any retracement is not likely to reap rewards commensurate to the increased risks. Keep close today and be prepared to abandon ship.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The 10 yr note is continuing to increase; at 9:00 this morning at 2.19% +1 bp while MBS prices at 9:00 unchanged. Today there are no scheduled economic releases but St. Louis Fed President James Bullard will be speaking on global growth as he summers in Canada; today Montreal, last week in Toronto. In early trade prior to the 9:30 open the key indexes were slightly better with the DJIA expected to open +20; at 9:30 +47, NASDAQ +5, S&P +4; 10 yr note yield at 2.21% +3 bp and 30 yr MBSs -15 bp frm Friday’s close. The recent intraday high for the 10 as 2.23%. A measure of Treasuries volatility climbed to the highest in almost a year last week as investors weighed whether the Fed will slow its bond-buying program as the economy improves. Volatility as measured by the Bank of America Merrill Lynch MOVE index rose to 84.8 on June 6, the highest since June 2012. The gauge has averaged 62.4 over the past year. The markets are completely consumed with what and when the Fed will begin to taper. There are reasonable arguments for about any view or opinion; it isn’t whether the Fed will begin to reduce its market support, it is all about when. One point of view that was talked about Friday was about previous comments frm various Fed officials that before any tapering the Fed may want to see 200K increases in jobs for at least four months before any actual action frm the Fed. Others see the Fed’s easing now as unproductive based on the still weak employment data and anemic economic growth as a waste of money and a disruption of normal market forces; the Fed and other central banks interfering with allowing markets to adjust to the reality frm the manipulated market effects caused by the Fed. The discussion over when the Fed will actually do something will continue all through the week. Next week (6/19) the FOMC meeting with its policy statement, it is wishful thinking that the statement will be definitive. One thing the Fed is facing in the QE that exists today, buying $40B a month of MBSs and $45B of treasuries, there may not be enough securities available to continue at the current pace for much longer. Disrupting the normal supply/demand would be another level of uncertainty that could roil markets. More not good data frm Europe today; Italian GDP fell 0.6% and France’s industrial confidence stalled in May. The euro-area economy contracted 0.2 percent in the first three months of the year, extending its recession into a sixth quarter, and is forecast to stagnate in the second quarter before returning to growth. China’s economy also slipping, the yr/yr industrial production below forecasts and export gains caused by weak European and US markets are at the lowest levels in 10 months. US, Europe and China’s economies are slipping but at present it isn’t of much interest for stock markets as the key indexes keep climbing. The only thing so far that the Fed’s easing has accomplished is to force investments into equity markets. We would not want to step in the debate on how much longer and how much higher the key indexes will go before economic reality takes over from the low interest rates the Fed has engineered; like trying to swim up Niagara Falls these days. The recent increase in mortgage interest rates based on the weekly MBA mortgage applications data have shown a sizeable decline in apps, especially re-finances. The housing sector has been touted by almost everyone as one of the pillars of the economic growth (which isn’t much); if sales were to decline another pillar will have crumbled. That said, there is no immediate reason to expect a big decline in sales---so far. So far this morning the 10 yr note after hitting at 2.22% has fallen back to 2.21% at 10:00; the stock market pend higher but has slid back at 10:00. Continued intraday volatility can be expected through the day in both stocks and the bond market. This morning the 10 is at its highest yield this month and 30 yr MBS prices are testing key support levels again; so far holding but very vulnerable now. The 10 is likely to move to 2.25% before any significant rebound. Any rebound in the bond and mortgage markets isn’t likely to be much with most now believing the Fed’s easing is coming to an end. Holding on for lower rates so far has not been a good decision for those taking that risk.

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 -11K about in line with estimates. Last week’s claims were revised frm 354K to 357K; the 4 week average +4500 to 352,500. Prior to the 8:30 data the 10 yr note had lost another basis point in yield to 2.08% but the claims data kind of ended that and the 10 back to 2.09% at 9:00. At 9:00 the DJIA was flat after being better earlier this morning. In the MBS world at 9:00 prices continued under pressure, down 14 bp in price. Yesterday the last hour of trading between 4:00 and 5:00 MBS prices declined 10 bp frm what we reported at 4:00 taking away all the gains seen earlier in the day. A few lenders re-priced better about mid-day yesterday but it was gone by 5:00. The MBS market continues to decline, even more than in the treasury markets. Possibly pressured by comments on Tuesday by comments frm Dallas Fed Pres. Fisher when said the Fed should reduce monthly purchases of mortgage backed securities. Through the month of May it was apparent that lenders were unprepared for the massive selling of MBSs; not hedged, and that led to excessive panic and wild price declines. Yesterday the Fed’s Beige Book data wasn’t good based on comparing the last Beige Book last April, the Book couched the assessment on the economy not being as strong as it was in April’s Book. The result was a big decline in US stock indexes. In Europe this morning ECB Pres. Draghi kept their base lending rate unchanged while revising lower its growth rate for 2013. The ECB now expects the economy to shrink 0.6% and the inflation to be at 1.4% on average. German factory orders fell more than economists predicted in April, data showed today. Orders, adjusted for seasonal swings and inflation, decreased 2.3% from March, when they increased a revised 2.3%, the Economy Ministry in Berlin said; estimates were for a decline of 1.0%. At 9:30 the DJIA opened -22, NASDAQ unchanged, S&P -3; 10 yr note at 2.10% +1 bp. 30 yr MBS price for the 3.5 coupon -3 bp, the 3.0 coupon -18 bps. Nothing the rest of the day except speculation over what the May employment data will show tomorrow morning. Earlier this week the general forecast was for an increase of 178K private jobs and 167K non-farm jobs with unemployment unchanged at 7.5%. Wednesday ADP was expected to reveal private jobs increased 171K, as reported ADP said just 135K and in turn analysts are now expecting 165K private jobs. It is always a guessing game with the employment data; it is rare that what is reported actually comes close to estimates. The lead into the May report is about the same as the lead into the April report; ADP shocked markets with just 119K new jobs when estimates were an increase of 165K. The lower ADP data sent estimates for the BLS data lower but when the report hit it was stronger than expectations, the result started the rapid increase in rates that still hasn’t abated. What will we see tomorrow? Technically, the bond and mortgage markets remain bearish; we had support for the June 3.5 Fannie coupon at 103.00, it held until this morning (now trading at 102.89). Fundamentally, the main concern is what will the Fed do about its QE? Most market participants are of the mind that the Fed is about to begin tapering the easing’s. The timing is debatable but it doesn’t matter, markets are already moving to reflect some curtailment of the Fed’s QEs. Until this week the stock market didn’t seem to care about the reduction; if the Fed backs off it is an indication that the economy is improving, on the other hand if the Fed stays in the game it will keep rates from increasing and that is considered a good thing. If tomorrow’s May employment report is at or better than estimates the 10 yr will likely climb to 2.25% and take mortgage rates up another 10 basis points in rates.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:15 the 10 yr was +8/32 at 2.12% -3 bps; US stock indexes were slightly weaker. At 8:15 ADP reported private job growth in May increased by 135K, the consensus estimate was +170K; April private jobs were revised lower, to 113K frm 119K. It was all in the service sector increasing 135K, construction gained 5K jobs, financial services +7K, manufacturing lost 6K. Small businesses added 57K jobs. The initial reaction improved the bond market, the 10 yr at 8:30 +13/32 at 2.11% -4 bps, 30 yr 3.5 FNMA MBSs struggling at 8:30 up 14 bp---not much as the MBS market remains more bearish than treasuries. At 8:30 Q1 productivity was in line with forecasts, +0.5% however unit labor costs declined 4.3%on forecasts of +0.5%. In Europe this morning the German bund yield declined 3 bps to 1.51% after hitting 1.57% on Monday, the highest rate since late February. Gross domestic product in the euro area fell 0.2% in the first quarter, while separate reports showed retail sales in the region fell in April and services shrank last month. All of Europe’s stock markets were weaker today on continued concerns the region is still struggling to grow. Dallas Fed President Richard Fisher talking about the end of QE yesterday. He focused a comment on the MBS purchases the Fed is doing; “It would be prudent to dial back the rate of purchases we are making in mortgage-backed securities” now that “the housing market is in a good state, construction has started again, housing prices are appreciating significantly.” It isn’t news that the Markets are actively talking about the Fed ending its QEs; most believe when the time comes it will be a slow unwinding. When will the Fed actually begin stepping aside? The question of the year so far. When is totally data dependent over the next couple of months, recent measurements of the state of the economy are inconclusive; housing markets better but manufacturing still struggling as evidenced by the ISM data on Monday, unemployment still high. As months pass it is becoming more clear that the Fed’s QEs are not doing the job the Fed was expecting. At 9:30 the DJIA opened -44, NASDAQ -13, S&P -5. 10 yr note at 2.11% -4 bp while 30 yr MBS price up just 7 bp on 3.5 coupons and +19 bp on 3.0 coupons. More data at 10:00; April factory orders expected up 1.5% increased just 1.0% and March orders revised to -4.7% frm 4.0%. The May ISM services sector index was fractionally better than expected at 53.7 53.2. The interior components, new orders at 56.0 frm 54.5 in March but employment index fell to 50.1 from 52.0; the employment component in January was 57 and has been slipping since. More weaker than expected data on employment may cause traders to lower their expectations for job growth in Friday’s employment report. The market reaction to the weaker data improved the level of decline in the stock indexes and didn’t cause any immediate improvement in the bond and mortgage markets. As previously noted, the stock market is taking any data---good or bad---as a positive. Weak economic data keeps the Fed in play, strong data implies the economy is improving. We should be seeing better bond and mortgage prices frm prior to 10:00 but that hasn’t occurred, fortifying the view that bearishness in the bond market remains very high. Over the last week we have recommended floating unless the 3.5 FNMA coupon for June closes under 103.00; yesterday the price closed right on 103.00. This morning so far it is holding but I am not impressed with it at the moment; what to do? Likely if the MBS markets do hold and improve frm here it will not begin until the May employment report is released on Friday, and the report has to be softer than what is presently expected (178K private jobs). The ADP weaker this morning than what was expected, unfortunately we can’t make much of it as the differences between ADP and the BLS data usually are a lot different. The BLS data trumps the ADP every time. Last month ADP said 119K private jobs, the BLS reported 176K private jobs. The bond and mortgage markets are overdue for some kind of correction but that has been the case for almost two weeks and the selling has continued. Unless the markets find support on the May employment report on Friday we then would expect the 10 yr to move to 2.25% and mortgage rates will increase more.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally flat early this morning but it didn’t stay that way for long; no economic data today that could move markets. At 8:00 the 10 yr was unchanged as were mortgage prices, by 8:30 more selling, the 10 yr at 2.15% +2 bp and 30 yr MBSs -15 bps frm yesterday’s close. European and Asian stock markets better; US futures trade at 8:30 were essentially unchanged. There was one data point this morning although no market reactions; April US trade deficit declined by $40.5B slightly less than what had been thought. Yesterday the May ISM manufacturing index was disappointing in a sense; at 49.0 it is slightly contracting, the employment component also fell below 50 at 48.8. Also weaker, April construction spending, +0.4% with estimates for an increase of 1.0%. The weaker data kept the 10 yr note in check but MBS prices couldn’t manage to improve. The stock market rallied yesterday; these days data isn’t a concern for the equity markets, how long that can last is one big question. Weak data supports the idea the Fed won’t taper soon, strong data supports the idea that the economy is gaining momentum. That condition may change when the May employment report is released on Friday. A strong employment report will add more selling in the bond market, strong stock buying; a weaker employment report will rally the bond market and will very likely send stock indexes down. At 9:30 the DJIA opened +4, NASDAQ +4, S&P unch. 10 yr at 2.15% +2 bp and 30 yr MBS -16 bps. Not much on the news wires today that have much impact. Tomorrow markets will begin to increase importance of the May employment report on Friday. ADP will report their numbers for May private jobs, the forecast is ADP will say jobs increased by 171K. ADP data most times doesn’t reflect what the BLS will report but it does drive markets. Last month ADP reported April private jobs +119K and revised Feb and March numbers to take away 27K originally reported in those months. The reaction to the weak report sent economists and analysts revising their forecasts lower for the BLS data two days later. When the April BLS data hit it set off a firestorm of selling in the interest rate markets that has not abated. BLS reported private jobs in April increased 176K and revised Feb and March increasing another 114K. So, many times ADP data can be well off the mark that the BLS reports; but it does set up potential volatility. The present consensus estimate for May jobs frm the BLS, 167K for non-farm jobs and +178K private jobs; the estimates are almost the same as what BLS reported for April. A couple of Fed speakers today; at 12:30 Fed Governor Sarah Raskin on job creation trends. At 1:30 Esther George KC Fed President speaks on the economy in Sane Fe. Raskin’s speech won’t carry any market interest but George’s may pending how she addresses the QE question. 3.5 June FNMA coupon is close to its key support at 103.00; a close under that level is likely to add more selling. The 10 yr note remains solidly bearish, so far after the huge increase in rates over the last month has not slowed. Technically oversold but the bearishness surpasses a lot of normal market responses to technicals these days.

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 traded at 2.17%, by 9:00 the note was unchanged from last Friday. The US stock market took a hit last Friday, the DJIA -208 points, this morning in pre-pen trading the DJIA +75. This week has been anticipated for two weeks, it is employment week. The drive higher in interest rates was set in motion in early May when the April employment report was much stronger than all the forecasts. Was the April report an aberration, or the beginning of stronger employment conditions, Friday should clear the air a little. Interest rates continue to increase as the momentum builds that the Fed will begin tapering its QEs sooner than what had been thought as little as three weeks ago. The US 10 in May increased frm 1.63% to 2.16% last Friday and 30 yr MBSs increased 30 basis points in rate during the month. Much of the April and May data that has been released so far has been a little stronger than forecasts. German bunds fell, with 10-year yields rising to the most in three months (presently 1.55%), after Federal Reserve Bank of San Francisco President John Williams said the U.S. asset-purchase stimulus program might end this year. Williams is not a voting member at the FOMC told reports the Fed may start tapering this summer and end its easing’s by the end of the year. Yet another Fed official with his thoughts; if he is correct the speed of the Fed’s withdrawal would be swifter than markets presently believe. The Fed has two mandates; keep unemployment low and guard against inflation; inflation is lower than the Fed’s 2.0% target (1.5%) and the employment sector is still soft, although improving----at least based on the April data released last month. Forecasting with any degree of accuracy the employment report is more a dart throw, generally the report deviates in wide ranges compared to the consensus estimates that this morning call for non-farm jobs in May increasing 167K and private jobs +178K; it is a high probability the actual data will be substantially different. A gauge of manufacturing in the 17-nation euro area increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. That’s above an initial estimate of 47.8 on May 23. The gauge has been below 50, indicating contraction, since July 2011. In the U.K., a separate report by Markit and the Chartered Institute of Purchasing and Supply showed a factory index climbed to a 14-month high of 51.3 from a revised 50.2 in April. The European data today followed euro-zone industrial confidence and trade data released last month that showed the region is on a path to recovery. The US manufacturing was reported at 10:00 this morning (see below). At 9:30 the DJIA opened +52, NASDAQ +3, S&P +2; 10 yr unchanged at 2.16% but MBS prices continue to fall, down 31 bp frm Friday’s close. While Friday’s employment report is the most important this week, there are a number of other key data points to work through until then. At 10:00 this morning the May ISM manufacturing index was expected at 51.0 frm 50.7, the index was weaker at 49.0 the lowest since last Nov; last week the regional Chicago index was much stronger than thought but this national number confirms manufacturing is still struggling. The new orders component in the report at 48.8 frm 52.3 in April, under 50 is contraction. The employment component also dropped to 50.1 frm 50.7. The report no matter how it is viewed was very weak. Also at 10:00 April construction spending was thought to be up 1.0% increased just 0.4%. The two reports turned mortgage prices frm -29 bp to +14 bps. The 10 yr note yield fell frm 2.16% to 2.11% on the reaction to the weak reports.