Mortgage Rates





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



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Wednesday, February 02, 2011


Prior to 8:15 this morning treasuries and mortgages were doing a little better with US stock indexes slightly weaker after the strong rally yesterday. The 10 yr note at 8:00 +7/32 to 3.42% -2 bp and mortgages +4/32 (.12 bp). At 8:15 the infamous and market-unsettling ADP employment estimate for Jan; ADP was expected to show an increase of 140K/150K jobs, as reported up 187K. The ADP report on jobs in Dec sent markets scrambling when the company reported job growth of 297K, in the report this morning they revised it to 257K. After the huge miss on jobs in Dec (BLS reported 113K non-farm private jobs), most traders simply ignored the report as they should. Over the previous six reports, ADP’s initial figures were closest to the Labor Department’s first estimate of private payrolls in July, when it understated the gain in jobs by 29,000. The estimate was least accurate in December, when it overestimated the employment gain by 184,000.

Today’s ADP report showed an increase of 21,000 workers in goods-producing industries, which includes manufacturers and construction companies. Service providers added 166,000 workers. Employment at factories increased 19,000 jobs, ADP said. Companies employing more than 499 workers expanded their workforces by 11,000 jobs. Medium-sized businesses, with 50 to 499 employees, created 79,000 jobs and small companies increased payrolls by 97,000.

The "official" employment report hits on Friday; estimates are for an increase of 140K jobs. Already economists and analysts are hedging their estimates because of the weather issues that have hammered much of the east through Jan. One thing is likely, the actual report won't be near the estimates; either much stronger or much weaker, take your pick.

It is Wednesday; the MBA released its Weekly Mortgage Applications Survey for the week ending January 28, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 11.3%. The previous week did not include a holiday adjustment for Martin Luther King, Jr. Day. The Refinance Index increased 11.7% from the previous week. The seasonally adjusted Purchase Index increased 9.5% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 1.0%. The four week moving average is down 1.5% for the seasonally adjusted Purchase Index, while this average is up 1.7% for the Refinance Index. The refinance share of mortgage activity decreased to 69.3% of total applications from 70.3% the previous week. This is the lowest refinance share observed in the survey since the week ending May 14, 2010. The adjustable-rate mortgage (ARM) share of activity increased to 5.5% from 5.2% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.81% from 4.80%, with points decreasing to 1.02 from 1.19 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.13% from 4.12%, with points decreasing to 1.01 from 1.26 (including the origination fee) for 80% loans.

At 9:15 Treasury announced the details of next week's quarterly refunding. Tuesday $32B of 3 yr notes, Wednesday $24B of 10 yr notes and Thursday $16B of 30 yr bonds. The total of $72B is in line with what dealers were expecting.

At 9:30 the DJIA opened down 21, the 10 yr note +6/32 3.42% -2 bp and mortgage prices +5/32 (.15 bp).

We are not expecting much for the rate markets today. Friday's Jan employment report looms and next week Treasury will conduct its quarterly refunding auctioning $72B of notes and bonds. By 10:00 the 10 yr and mortgages have already drifted off their best levels seen prior to 9:30 when the equity markets opened. The 10 still confined to its six week range, mortgages also stuck in their tight range keeping mortgage rates essentially unchanged for the past month. We continue our longer term bearish outlook for interest rates, the economic recovery is improving and inflation while not yet an issue, prices pd for commodities and energy are increasing and keeping investors and traders reluctant to press the bond market much.