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 24, 2011



US interest rates started better this morning on continuing increases on oil prices; the stock market key indexes pre-open were trading weaker. Crude oil continues to increase, West Texas Intermediate oil trading over $100.00 a barrel early today while Brent Sea oil is at $120.00 a barrel (see below for 10:00 level). Oil output has been cut from Libya and Algeria as those so called governments move ever closer to collapse. Qaddafi is still hanging on but everyday another member of his ruling cartel are leaving to join protestors; it may take a few more days but it appears Qaddafi will be forced to leave the country. In the meantime in Saudi Arabia citizens took to the streets, but not in protest, in celebration the king has returned to the country after receiving medical treatment. The king in a move to fend off any citizen unrest said he would spend $37B for social services. So far the country is quiet. Crude oil will likely continue higher, oil traders saying $140.00 is where its headed; if that happens the US stock market will continue its decline and US interest rates will find support.

Safe haven moves to treasuries are supporting the mortgage markets as long term rates decline. That said, the safety moves to treasuries don't amount to a lot, suggesting the situations in the Mideast and N Africa will not present any longer term serious problems. If investors were truly fearing a massive collapse of governments in the region that would cut oil production safety moves into treasuries would by now have interest rates at least 25 basis lower. The improvement in US rate markets is attributable to the long awaited correction in the stock market as much as it is on safety moves. Of course the decline in stock indexes is being motivated by oil prices increasing, that will likely continue. Oil traders always, without fail, over-run reality on huge moves up or down, this time will be the same. OPEC lead by the Saudis are not likely to let oil production decline for long before increasing production.

Already this morning, after trading better the bond and mortgage markets are backing off while the stock indexes that were very weak at 8:00 have worked better into the 9:30 open. Crude oil early on was up $3.00/barrel from yesterday, by 9:15 up $1.50. At 8:00 the 10 yr note +15/32 at 4.43% -6 bp, mortgage prices +10/32 (.31 bp); at 9:15 the 10 +8/32 at 3.45% and mortgage prices +4/32 (.12 bp). The day is beginning with increased volatility.

Weekly jobless claims this morning declined 22K to 391K, traders were looking for about an unchanged read. Continuing claims fell to 3.790 mil frm 3.935 mil last week, the lowest since Oct 2008. Also at 8:30 Jan durable goods orders, always a volatile series, were up 2.7%, Dec revised from -2.3% to -0.4%. A nice headline, but when volatile transportation orders are excluded orders fell 3.6%, when transportation and defense orders are excluded orders plummeted 6.9%.

At 10:00 Jan new home sales, expected to have fallen 5.8%, declined 12.6% to an annual rate of 284K; the lowest annual level for new home sales is 274K. No reaction to the report in either stocks or bond markets.

At 1:00 this afternoon Treasury will auction $29B of 7 yr notes, yesterday's and Tuesday's 5 yr and 2 yr auctions were not the best in terms of demand. Some are beginning to question whether foreign investors are backing away from US debt; if today's 7 yr suffers weaker demand look for that question to gain more attention.