Mortgage Rates


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




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Thursday, March 03, 2011


Treasuries and mortgages opened weak this morning, prior to 8:30 the 10 yr note off 4/32 and mortgages -2/32 (.06 bp). At 8:30 weekly jobless claims added more selling; weekly claims were expected up 9K, they fell 20K to 368K and last week's claims were revised from 391K to 388K. Continuing claims fell to 3.774 mil frm 3.833 mil last week. Weekly claims are the lowest since May 2008, more evidence the employment situation is improving. The four-week moving average, a less volatile measure, dropped to 388,500, the lowest since the week ended July 12, 2008, from 401,250 last week. It was also the first time the monthly average has been below 400,000 since July 2008. The 10 yr note fell 15/32 to 3.53% at 8:40 while mortgage prices fell 14/32 (.44 bp) in a knee jerk reaction then settled at -9/32 (.28 bp) at 9:00. Also at 8:30 but not a factor; Q4 worker productivity was unrevised at +2.6% and Q4 unit labor costs was also unrevised from the advance report last month at -0.6%.

Tomorrow the Feb employment report will show an addition of 200K new jobs and the unemployment rate up 0.1% to 9.1% according to recent consensus. Prior to yesterday's ADP report that private jobs increased 217K estimates for non-farm jobs was +180K. Always a wild report that most of the time deviates from estimates, the employment report tomorrow won't be any different.

A very strong open in the stock market this morning, the DJIA up 114 points on the open, NASDAQ +33 and the S&P +14. With equity markets strong the bond and mortgage markets are weaker. We note that the 10 yr note, driver for the mortgage markets, has been unable to break below 3.40% where it closed yesterday. Every time the rate falls to that level buying dries up.

At 10:00 the Feb ISM services sector index, expected at 59.0, increased to 59.7 frm 59.4 in Jan. The new orders component at 64.4 frm 64.9, the prices pd component at 73.3 frm 72.1 and employment at 55.6 frm 54.5. Not much initial reaction the report as it was generally in line with forecasts, it was yet another better data point than thought and more evidence the economy is improving. Any reading on the indexes over 50 is considered expansion.

Crude oil is weaker this morning as is the gold market. No new unrest noted in the Mideast or N Africa. The Arab League is holding discussions with Venezuela on sending mediators to Libya to attempt to negotiate Qaddafi's abdication. The Arab League said it’s weighing an offer by Venezuela’s Hugo Chavez to intervene in Libya’s civil conflict. Just what the world needs, Hugo Chavez sticking his nose in the situation. While lower today, crude oil is likely to continue to climb. The unsettled conditions in the Mideast still exist; websites in Saudi Arabia are calling for a nationwide Saudi “Day of Rage” on March 11 and March 20, according to Human Rights Watch. With news like that oil markets will continue to increase as long as protests continue.

Talk of interest rates increasing in Europe will not subside; German two-year government notes plunged, pushing the yield up to the highest in more than 20 months, as European Central Bank President Jean-Claude Trichet said interest rates may be increased at the next meeting. Ten-year yields also surged as Trichet told reporters in Frankfurt that inflation risks have moved to the “upside.” If (when) the ECB increases its base rate it will add pressure to US rate markets even though the Fed is not likely to follow and increase the US base rate. Markets are moving closer to a ratcheting upward move on rates with debt in the US still increasing, all the sovereign debt problems in Europe and inflation increasing in China and all emerging markets.