Mortgage Rates





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




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Thursday, February 03, 2011


Interest rate markets continued to sell-off this morning; the 10 yr note moving slightly out of its six week range, at 9:00 am the 10 yield at 3.52% and likely will test the intraday high rate at 3.55% hit on Dec 16th. Mortgage prices down 8/32 (.25 bp) at 9:00 am.

8:30 data was a mixed picture; weekly jobless claims fell 42K to 415K, estimates were for a decline of 19K. Continuing claims were lower, 3.925 mil from 4.009 mil. Q4 worker productivity was better, up 2.6% a little better than +2.3% expected. Q4 unit labor costs fell 0.6%, forecasts were a decline of 0.1%. The better productivity brings debate about future hirings, stronger productivity implies less need for new hires. That said, productivity is a lot weaker now than it was two years ago.

January chain store sales were surprisingly strong with most expecting a soft Jan due to weather conditions, it didn't happen. The results counter the weakness reported by ICSC-Goldman and Redbook which had been warning of strongly negative weather effects. Today's reports point clearly to another month of strength for the ex-auto ex-gas category of the monthly retail sales report.

The DJIA opened down 12 points at 9:30, the 10 yr note at 3.54% +6 bp and mortgage prices -9/32 (.28 bp) frm yesterday's close. (see below for 10:10 levels)

More key data at 10:00; the Jan ISM services sector index, expected at 57.0 frm 57.1 jumped to 59.4. Yet one more data point that beats estimates; the employment component increased to 54.5 frm 52.6, the new orders component increased to 64.9 frm 61.4 and the price component increased to 72.1 frm 69.5. Any of the indexes above 50 is expansion, the higher the stronger.

Dec factory orders out at 10:00, expected to be down 0.4%; increased 0.2% and Nov orders revised from +0.7% to +1.3%.

The two 10:00 reports pushed the 10 yr to 3.55% before backing off momentarily. Mortgage prices held lower at -9/32 (.28 bp).

Markets still have Bernanke to think about; he will be speaking to the National Press Club in Washington, taking questions from reporters.

Overnight the ECB left interest rates unchanged after rattling markets recently with comments that the bank would begin tightening to head off inflation. The bank is weighing the risk of faster inflation against the danger that higher borrowing costs could worsen the region’s sovereign debt crisis. Trichet said last month that while the jump inflation is “temporary,” risks to the price outlook “could move to the upside.” That prompted investors to bring forward expectations for an ECB rate increase to as soon as the third quarter. ON inflation, ECB's Trichet like Bernanke, talking tough on inflation but finding good reasons not to raise rates and run the risk of choking off economic recovery.

The situation in Egypt remains tense but still having little or no impact on financial markets as most continue to believe the situation will not spread to other mid-east countries. Crude oil doesn't need much of a reason to increase as it has but not much. News now from Egypt is that reporters are being rounded up and buildings being searched to find anyone with a camera; what isn't clear is who is doing it---Mubarak followers or Mubarak protestors.

Technically, the bond and mortgage markets are increasingly bearish; the 30 yr FNMA coupon failed at its key 20 and 40 day averages, the 10 yr note is moving out of its almost two month trading range to higher yields. We have been saying for months interest rates are headed higher, the economy can't be ignored for its strength, prices are increasing but so far haven't filtered down to consumers. The general outlook for global rates is for increases from emerging markets to China to Europe and here in the US. The Fed can control short term rates but isn't much of a force for long term rates, investors and traders increasingly moving out of bonds and into equities just what Bernanke wants. The equity markets haven't rallied on the better economic reports this morning keeping the rate markets from deteriorating further.