Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com


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Tuesday, January 25, 2011


Treasuries and mortgage markets opened better this morning on lower US stock indexes following very weak British Q4 GDP report this morning. Britain’s gross domestic product sank 0.5% in the three months through December after increasing 0.7% in the previous quarter. Economists had predicted 0.5% growth in the U.K.’s GDP. By 9:45 however all the early gains in mortgage markets were gone and the bellwether 10 yr after being up 12/32 early was +5/32.

The Nov S&P/Case-Shiller index of home values in 20 U.S. cities fell 1.6% from November 2009, the biggest 12-month decrease since December 2009. Home values fell 0.4% for the 10 largest markets.

Treasury starts the week's borrowing this afternoon with $35B of 2 yr notes; should see good demand but recent auctions have been spotty with some issues seeing strong bidding while others don't do so well. Two weeks ago Treasury auctioned a 3 yr note that was not well bid. Tomorrow $35B of 5 yr notes and Thursday $29B of 7 yr notes.

The Fed begins two days of the FOMC meeting today, nothing today but at 2:15 tomorrow the policy statement will be released to fanfare and potential trepidation. The Fed is highly unlikely to alter its $600B purchases of treasuries even though business lending is increasing and the economic outlook appears stronger. Recent Treasury auctions amount to a little over $200B a month, the Fed is buying about half that amount in seasoned notes lessening the supply a little and adding some support for longer term rates.

The Johnson Redbook chain store sales increased 2.3% for the week ended 1/22 versus the same week a year ago. Yr/yr chain store sales increased 2.5% (Jan 2011/Jan 2010). Month to month sales however declined 0.7% in Jan compared to last month (Dec).

The Jan Conference Board's consumer confidence index, expected at 54.4 frm 53 (revised frm 52.5).5 in Dec, increased to 60.6. The expectations index also climbed, to 80.3 frm 72.3. The huge increase in confidence is the highest reading since last May. The reaction took mortgage prices lower and the 10 yr back to unchanged from +4/32 prior to the report. Also at 10:00 the FHFA housing price index was unchanged from Oct which was up 0.7%.

Gold and crude oil continue their fall this morning; gold is off about $80.00 frm its recent highs over the past couple of weeks, now at a two month low. Crude oil, widely expected to increase to $100.00 this spring, hit $91.00 levels recently but has been sliding recently, this morning early crude was off another $1.00 at $87.00 (see below for 10:00 levels for gold and crude).

The DJIA opened -21, the 10 yr note at 9:30 +8/32 3.37% -4 bp and mortgage prices +3/32 (.09 bp). The infamous 10 yr note still confined to its six week cage between 3.50% and 3.25%, nothing seems to shake it, a traders delight; no directional trend. Traders moving the note in its range and doing quite well with not much risk; buy 10 yr note futures when the yield hits above 4.45%, sell at 3.28%.

The 10:00 data (consumer confidence) took everything out of the early gains; lenders that priced prior to 9:30 this morning may already be setting up for re-pricing lower. At 9:30 mortgage prices were +3/32 (.09 bp) and 10:05 -5/32 (.15 bp) a drop of 8/32 (.25 bp).