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 16, 2011


Prior to 8:30 data the bond market was flat from yesterday's close, mortgages however continue to outpace the bellwether 10 yr note. Yesterday mortgage price increased 7/32 (.21 bp) while the 10 price was up 5/32.

8:30 data; Jan producer price index expected up 0.8% was right on, the core however (ex food and energy) increased a surprising 0.5% the largest month to month increase since Oct 2008. The result was slow to take hold, it took 30 minutes to see any reaction to the data before prices declined on treasuries and mortgages. Producer prices are increasing but will those increases begin to be passed on to consumer prices; tomorrow we will see Jan CPI.

Also at 8:30; Jan housing starts, expected up 2.4%, increased 14.6%; permits expected down 8.7% fell 10.4%. Again markets ignored the increase in starts with data from the NE way off base---up 41%?.

At 9:15 Jan industrial production expected up 0.5%, fell 0.1%. Jan capacity utilization was expected at 76.4%, it hit at 76.1% frm 76.2% in Dec (revised frm 76.0%). Prior to the two reports the 10 yr note traded off 7/32 an mortgage prices were down 5/32 (.15 bp). Both the 10 and mortgages improved slightly but still were lower on the session. (see blow for levels at 10:00).

Later today at 2:00 the minutes from the 1/26 FOMC meeting will be released. Focus on the debate over the Fed's QE 2 $600B buy of Treasury's. Within the Fed there is building debate over whether the Fed should end it before its conclusion at the end of June, but it is very unlikely that will happen. The Fed will complete the program. Bernanke has made it clear he will keep it up until the Fed is certain the economic improvement will be self-sustaining.

Congress is beginning to tackle the budget deficit after the Pres released his 2012 budget with minimal cuts and spending freeze. A lot of talk about the budget plan being dead, likely is but will Congress have the stomach to deal with the big cuts? Social security and Medicare; both must be cut and taxes increased, it isn't new news but for years now our elected officials in Congress and any Administration haven't had the guts to do anything. Unless we start working on the tough issues US interest rates will sky rocket as foreign investors that continue to fund our deficit will demand a much higher return.