Mortgage Rates





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



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Tuesday, February 22, 2011


Over the long weekend the situation in Libya worsened, in Bahrain protestors continued to demonstrate, tensions increased in many other Mideast countries. In Libya demonstrators were attacked remanding the end of Qaddafi; his son said the regime would fight with the last bullet. While there is no relaxation in the region over demands for changes, situations are not getting worse, just more of the same. In Libya where tensions did increase over the weekend the major impact is being seen in oil prices, yesterday the price of crude jumped over $5.00, a two year high; Libya is a member of OPEC and produces 1.6 million barrels a day. The US bond market is being supported by safe haven moves and the decline in equity markets here and in Europe and Asia.

This morning at 8:00 am the 10 yr note rate fell to 5.50% where we have technical resistance, so far that has held. Mortgage prices following the rate decline in treasuries. At 9:00 this morning the Dec Case/Shiller 20 city home price index continued to fall, down 2.4% frm Nov; the 10 city index fell 1.2%. No surprises in the data and generally doesn't get much attention from traders.

At 9:30 the DJIA opened down 90 and continued to fall; the 10 yr note +14/32 at 3.53% and mortgage prices +9/32 (.28 bp). Gold and crude oil moving higher. (see below for 10:00 prices).

At 10:00 Feb consumer confidence index by The Conference Board was expected at 65.0 frm a revised 65.6 frm 60.6 in Jan, jumped to 70.4, the highest in three years. Also at 10:00 the regional Richmond Fed manufacturing index for Feb increased to 25 frm 18; another regional Fed report beating forecasts and showing nice improvements. Both data points took some away from the price gains in the bond and mortgage markets.

Later today at 1:00 Treasury will sell $35B of 2 yr notes, the first of three auctions this week totaling $99B. The 2 yr note has generally been strongly bid but last month not so strong. Investors bid for 3.47 times the amount for sale last month, higher than the average of 3.40 for the past 10 auctions but indirect bidders, the category of investors that includes foreign central banks, bought 27% of the notes, versus the 10-sale average of 33.8%.

Inflation talk continues in Europe and to a lesser extent here in the US. Looking at the derivatives markets shows traders anticipate economic growth that will fail to spark runaway inflation, even as global food and energy prices soar and the Federal Reserve pumps $600B into the financial system by buying bonds. Although the markets are not actually positioning for inflation it is unlikely concerns will erode. Where prices are about to increase are ion food and energy; the Mideast and N. Africa disturbances have crude oil spiking to 2 yr highs and most all food commodities hare trading at multi-year highs. As higher raw material prices increase those increases are likely to begin being passed on down to consumers and in turn drag on consumer spending with more spending on gasoline and food; since we don't consider food and energy prices in inflation gauges if consumer spending is expected to slow it will be good for the bond and mortgage markets.

Technically both the 10 yr treasury and 30 yr 4.0 MBSs are testing the first resistance levels this morning. The 10 yr note presently trading slightly above its 20 day MA on the yield chart and MBSs sitting at their 20 day average. Safe haven buying has held rates over the last month although the magnitude of treasury buying on safety moves isn't very strong. Also adding support in the bond market this morning, the big declines in the key stock indexes. Today is somewhat important with rate markets sitting on what wee consider critical resistance levels. The DJIA traded down over 100 points at 9:40 but by 10:00 the index recovered almost half of the early loses, as the index improved the MBS markets have backed off a little.