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 17, 2011



Treasuries and mortgages are doing better this morning; weekly jobless claims at 8:30 were right on, up 25K to 410K after tumbling 36K last due to bad weather. Continuing unemployment claims were essentially unchanged from last wee. Jan consumer prices rose 0.4% slightly higher than 0.3% estimate, removing food and energy CPI up 0.2% also slightly higher than 0.1% estimate. Yesterday Jan producer prices increased 0.8% about in line but when food and energy are left out the core jumped 0.5% much stronger than 0.2% estimates. Markets talk a lot about inflation concerns but the action in the interest rate markets appears to be ignoring any real concern so far.

At 10:00 Bernanke is testifying before Senate Banking Committee on Dodd-Frank reforms, with SEC Chair Mary Schapiro, FDIC Chair Sheila Bair, and CFTC Chair Gary Gensler, in Washington. He is not addressing either the status of the economy or monetary policy. He is staying on message on how the Fed is helping to establish the new Bureau of Consumer Financial Protection (CFPB).
Two reports at 10:00; Jan leading economic indicators expected +0.2% were up 0.1%, Dec revised to +0.8% frm 1.0%; no big concern. The Feb Philadelphia Fed business report, one of the Fed's favorites, jumped to 35.9 from 19.3 in Jan and well over the estimates of 21.9. The sub-components were better but not as powerful as the headline; new orders were about unchanged, 23.7 frm 23.6, employment at 23.6 from 17.6 and prices pd at 67.2 frm 54.3. Any index above zero is considered expansion, the higher the stronger. The initial reaction took the 10 yr note price down a little and mortgages dropped a touch; both still holding gains on the day. The stock market bounced of lows but still weaker.

The US bond market has been improving over the past week, not in huge chunks but steadily edging higher in price and lower in yields. The market appears to be ignoring recent economic data and inflation increases in Europe and Asia, event yesterday with US PPI core increasing over two and a half times estimates and a slight increase this morning in core consumer prices. We noted a few days ago that the turmoil ion the mid-east would likely spread to many nations; after Egypt and Tunisia were successful in toppling present regimes other countries are experiencing some of the same protests. This morning in Bahrain riots increased, protestors being tear gassed and shot at; Bahrain is the base for the Navy's 5th fleet. Reports coming from all over the mid-east; most not momentarily serious but as unrest spreads investors slowly adding to safe haven moves in US treasuries. Minor protests now in Qatar, Saudi Arabia, Iran and Libya in N. Africa. Geo-political issues now trumping domestic economic and inflation considerations on moves to safety trades increases.

While the Treasury and mortgage markets have improved on the increasing unsettled situation in the Mid-East and N. Africa, the technical situation in both markets remains bearish. The key momentum oscillators, key moving averages, and our proprietary models are still throwing off bearish readings. We believe the bond market is being supported by safety moves into treasuries, a slow process so far but as more reports of rioting and protests continue to expand from one nation to another in the region less attention is being directed to the improving economic outlook and inflation concerns. Until now the moves into safety have been rather moderate, if however tensions in the region continue to escalate the bond market will see more buying and take mortgage prices higher with them. Although in hindsight we have missed some opportunities we will keep our discipline and continue our slightly bearish bias until our models change and technicals turn positive.