Mortgage Rates


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




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Monday, March 28, 2011

More selling in the rate markets this morning; as we have noted recently interest rates are headed higher after all the safety moves triggered by Japan's problems. The stock market took a heavy hit on panic selling over Japan but is now trading better than prior to the earthquakes and tsunami. Interest rates also higher than prior to the issues. In Japan over the weekend, a lot of contaminated water surrounding the reactors and calls for the head of the power company to resign as the inability to provide accurate information or know what is happening has finally pushed the normally placid Japanese government to push for a change in leadership.

This morning at 8:30 Feb personal income and spending were reported; income was expected to have increased 0.3% it was on target, spending expected up 0.5% increased 0.7%. Personal savings was up 5.8% for the month but down from +6.1% in Jan. The PCE price index increased 0.6% and yr/yr +2.1%; the highest monthly increase on the PCE since June 2009 and the highest yr/yr since May 2010. ON the release interest rate prices already lower were knocked a little lower.

The DJIA opened a little better (+11), not much but still starting higher after last week's strong rally increasing 362, NASDAQ +99 last week and S&P +35. All indexes now above levels prior to Japan.

At 10:00 Jan pending home sales, sales with contracts signed but not yet closed, was expected up 0.3% after falling 2.8% in Jan. increased 2.1% but yr/yr still down 8.2%. No initial reaction to the report.

This afternoon at 1:00 pm Treasury begins its monthly 2, 5, and 7 yr auctions with $35B of 2 yr notes. Should go well given the recent increase in rates, its a 2 yr and generally does get decent demand.

This Week's Economic Calendar:
Tuesday;
9:00 am Jan Case/Shiller 20 city home price index (-3.3%)
10:00 am Mar consumer confidence index (65.0 frm 70.4)
1:00 pm $35B 5 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:15 am ADP non-farm private jobs estimate for March (210K)
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (383K -1K; continuing claims 3.70 mil frm 3.721 mil)
9:45 am Mar Chicago purchasing mgrs index (69.5 frm 71.2 in Feb)
10:00 am Feb factory orders (+0.4%)
Friday:
8:30 am March employment data (non-farm jobs +185K, non-farm private jobs +203K, unemployment rate unch at 8.9%)
10:00 am March Nat'l ISM manufacturing index (61.4 unch frm Feb)
Feb construction spending (-0.7%)
3:00 pm March auto and truck sales (N/A)

Last week St Louis Fed Bullard suggested the Fed should review whether to curtail plans to buy $600B in Treasuries (QE 2) because of strong economic data. His remarks added additional reason for selling the bond and mortgage markets. While we don't think the Fed will actually cut the intended $600B of purchases scheduled to end at the end of June, we do not believe there will be anymore quantative easing from the Fed. Although there are 90 days left for Fed purchases markets won't sit tight until the end comes. Traders already moving to discount the end and concerns about who will pick up the slack in private markets once the Fed finishes; $10B a month by the Fed needs that much more demand. That is unlikely at the present interest rate levels. We have note for a week that rates would increase, although they did last week we are not expecting an explosion in rates. Looking for the 10 yr note and mortgage rtes for 30 yr fixed to be up about 50 basis points from present levels by the end of the year.