Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -68 basis points from Monday's close which caused 30 year fixed rates to move upward for the second straight trading session. MBS started the day with a -36BPS sell off (higher for you) even before the first U.S. economic report hit the wires. This was partially due to a carry over from Monday's momentum that was driven by tapering fears in the bond market. It was also partially due to a better than expected Sentiment data out of Germany. Remember, as we get better news out of Europe...MBS will sell off causing mortgage rates to rise. We had a mixed bag with yesterday morning's economic data. The headline Retail Sales data came in just a little lighter than market expectations (0.2% vs est of 0.3%) but the prior period was revised upward from 0.4% to 0.6%. Retail Sales Ex Autos were 0.5% vs est of 0.4%. Still, Retail Sales were up and not down and that also provided some slight pressure on pricing. Import Prices were lower than expected (0.2% vs 0.6%). This was very low if viewed on an inflationary basis and a slight positive for bonds but this report and the weaker than expected Business Inventories were overshadowed by the traction that Europe is gaining. The theme for yesterday was two-fold. 1) Bond traders' speculation that the Fed would begin tapering in September and 2) Growing sentiment among economists that Europe is about to emerge from their recession.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -26 basis points from Friday's close which caused 30 year fixed rates to move upward. MBS started the day on an upswing, primarily due to speculation about the upcoming German GDP report. By then end of the day, MBS had sold off -53BPS from our intra-day high. Besides pulling back for technical reasons, MBS sold off in the afternoon after the economists at the San Francisco Fed released a report estimating that the asset purchases (Treasuries and MBS) procured via QE3 have added only "a moderate boost" to economic growth. The economic letter, written by Vasco Curdia and Andrea Ferrero, senior economists at the San Francisco regional bank, focused on the Fed’s second round of asset purchases: $600 billion of long-term Treasuries purchased between November 2010 and June 2011. The economists said the purchases added about 0.13 percentage point to real GDP growth. And without the guidance from the Fed that rates would be held close to zero, QE2 would only have added 0.04 percentage point to growth, the economists found. Essentially, traders view this as the Fed nearing tapering in September since the "bang for the buck" doesn't seem to be there. And of course (not to beat a dead horse), the greater the threat of a taper in September....the more pressure on MBS and therefore, the higher the mortgage rate.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) gained +0 basis points from last Friday's close which caused 30 year fixed rates to move sideways. So, for the past two weeks, MBS have moved only +8BPS which have kept mortgage rates fairly steady. Mortgage backed securities traded in a tight range and we avoided the major swings in pricing that we had in the prior week. We had light week in terms of the number of economic releases that hit the market and reports that were released were a mixed-bag. ISM Services came in much stronger than expected (56.0 vs est of 53.0) but Wholesale Inventories disappointed (-0.2% vs est of +0.2%). Initial Weekly Jobless Claims were very close to market expectations (333K vs est of 336K). So, the economic data didn't really drive our pricing last week. Instead it was Treasury auctions and Fed speak that were the major force in bond trades. We had three major U.S. Treasury auctions with the market focusing on the 10 year note and 30 year bond. Last week was all about the Fed and jobs. Both the 10 year and 30 year auctions came off weaker than their recent averages as measured by their bid-to-cover ratio but were still strong enough to keep MBS pricing up. Talking Feds: We had six different speeches by different Federal Reserve members, but few of them were voting members. Essentially, they all said the same thing: 1) the Fed needs to cut back their monthly bond purchases of Treasuries and mortgage backed securities, 2) it will most likely happen in 2013, 3) they need to see more economic improvement from the second half of this year before they move to taper and 4) they would not give a specific date for the first taper. The fact that there was no specific date for the Fed to begin tapering kept MBS at an elevated level which kept rates low.

Mortgage Rates

Mortgage Rates The benchmark FNMA 3.5% August coupon gained +13 basis points from Wednesday's close which gave a very small improvement to pricing. Initial Jobless Claims dropped lower and slightly beat the consensus estimates (333K vs 336K). This ls a nice level and is generally negative for MBS. But offsetting that headline data snippet is the fact that the prior week was revised upward and the Continuing Claims were worse than expected. As a result MBS rallied (better pricing for you). We reached our best levels of the day +30BPS at 11:45EDT. Many of you received a reprice for the better after that point But MBS started to retreat from their highs after the 30 year Treasury bond auction results were released at 1:05EDT. The bid-to-cover ratio (a key measure of demand) fell from the recent average of 2.55 down to 2.11 for this auction. This was negative for MBS and the benchmark FNMA 3.5% August coupon pulled back -21BPS from our highs as a result (worse pricing for you). MBS still closed in positive territory for the day but clearly our rally has "topped out". We issued a Special Report that informed you that we would be completing the monthly bond coupon rollover from August to September Friday morning.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -13 basis points from Monday's close and traded in a fairly narrow range that was only -34BPS wide from our highs to our lows. The stock market, as measured by the DOW lost -93 points AND MBS are trading lower at -14BPS. This once again demonstrates that stocks and bonds are more often moving in the same direction. Our Trade Balance was a smaller deficit than expected. This does show some additional economic improvement and normally would have pressured MBS more but did not materially impact MBS pricing. The Economic Optimism Index was 45.1 vs est of 47.9, this is another report that doesn't usually impact pricing. We had a 3 year U.S. Treasury note auction. Results: $32 Billion at 0.651% with a bid-to-cover ratio of 3.21. That measurement of demand was lower than our last 10 year auction at 3.44. Talking "Feds": The President of the Chicago Fed, told reporters he expects growth in the second half of the year to accelerate to a 2.5% annual growth rate, from a paltry 1% rate over the past three quarters, and reach over 3% growth rate in 2014. Based on this forecast, the central bank is “quite likely” to slow down its $85 billion a-month asset purchase plan “starting later this year,” Evans said. The Chicago Fed president said he could not predict exactly at which meeting the central bank would start to taper. “I couldn’t tell you exactly which month that will be,” Evans said. “We need stronger evidence of accelerating growth, a little more momentum,” he added. “We’re not far from that.” As we have discussed several times, the market fully expects some sort of taper by the end of the year. The only question is: Will it be September or December? From a technical perspective, MBS have now traded below our proprietary ceiling of resistance for the tenth consecutive trading session.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -99 BPS from Wednesday's close. We received more jobs data yesterday. Initial Jobless Claims were much lower than expected and dropped 19K from the previous week. The more closely watched 4 week moving average dropped 4,250. This coupled with Wednesday's strong ADP Private Payroll report once again had traders thinking that Friday's Non-Farm Payroll Report will be stronger than previously expected. As a result, MBS sold off (worse pricing for you). ISM Manufacturing was much stronger than expected (55.4 vs est of 52.0). This added fuel to the fire as traders speculated that Friday's employment data would improve. Construction Spending was down and that would have normally pressured MBS and helped mortgage rates but the prior reading was revised upward and so it was a wash.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com MBS sold off -52BPS (higher rates for you)on stronger than expected ADP Private Payrolls (200K vs 182K Est) and then we got hit with a much better than expected 2nd QTR GDP number (1.7 vs 1.2 estimate). We had a decent Chicago PMI report but it was less than market expectations and helped MBS to climb off of our lows for the morning and stay above our newest support level. There were no surprises with the FOMC meeting. They left their key interest rate unchanged and reaffirmed their previous guidance that they could continue to purchase $45 billion of U.S. Treasuries and $40 billion of GSE MBS each month. They also reaffirmed that they would increase or decrease the level of monthly bond purchases if they thought the economic data would support it. You can read the Fed's policy statement here: http://www.federalreserve.gov/newsevents/press/monetary/20130731a.htm As a result, MBS rebounded and rallied and moved back into positive territory. The FNMA Benchmark 3.5% August coupon moved from -30BPS at 2:00EDT to +30BPS by 3:15EDT...that is a +60BPS swing (better rates for you). This rally is not to be trusted though. As we stated, there was no new information yesterday and most likely their statement was prepared prior to baking in yesterday's ADP Private Payroll report. IF, Friday's Non-Farm Payroll report mirrors that of yesterday's ADP report, MBS will give up all of yesterday's late rally...so that is your risk vs. reward.