Mortgage Rates--



Weekly jobless claims were expected to have declined about 13K last week; claims were down 1K to 388K with last week’s claims revised from 386K to 389K. Continuing claims at 381,750 frm 375,500 last week. Another employment measuring stick that isn’t good. Although claims remain under 400K, a level that has been defined as pivotal for the jobs outlook, claims have increased from 350K levels to 388K levels over the last few weeks. Treasuries and mortgages were already better prior to the 8:30 report and added more on the claims. US stock indexes extended their weakness but not much; nevertheless US stock markets are opening weaker following Europe’s decline on a decline in business confidence in Italy.

At 9:30 the DJIA opened -9, the 10 yr note +12/32 at 1.94% -5 bp but the yield is 1 bp higher than at 8:30. Mortgage prices at 9:30 +8/32 (.25 bp) on 30s and +3/32 (.09 bp) on 15s.

At 10:00 March NAR pending home sales expected +0.5%, jumped 4.1%, yr/yr +12.8%. A good report. Pending sales are contracts signed but not closed, cancellations have been running high as credit issues continue to drag on mortgage markets. The report jumped the stock indexes with the DJIA prior to the report +12 now +40.

The last auction today at 1:00; $29B of 7 yr notes, yesterday’s 5 yr note saw solid demand.

Interest rates are declining this morning with US and European equity markets weaker. Yesterday the FOMC and Bernanke’s press conference indicated the Fed was not ready for another easing move that had been touted but wasn’t much of a factor in the decline in interest rates over the last month. Most traders and analysts were not looking for another QE at this time; the decline in US rates is more attributable to the continuing decline in Europe’s economy and the increasing reality that banks in Italy and Spain are facing serious problems with the debt they hold. Europe is dragging the rest of the world’s economic outlook down; if Europe were not headed for a deeper recession global economies including the US would be on a stronger growth path. Taken from a wide perspective Europe’s debt mess and the attempt at unrealistic austerity is back-firing; cutting jobs and spending is the correct thing most of the time but in the current situation cutting too much is actually hindering the debt problems’ resolution as economies decline.

Italian business confidence unexpectedly fell to the lowest level in more than two years in April amid concerns that the country’s fourth recession in a decade may deepen. The manufacturing-sentiment index dropped to 89.5 from a revised 91.1 in March. Economists had predicted a reading of 92.1. Pessimism among households has grown as tax increases and higher gasoline prices crimp domestic demand. Consumer confidence plunged to the lowest in more than 15 years this month.

Spain’s recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6% as investors speculate the government will be forced to bail out the financial system. The Bank of Spain said April 23 that gross domestic product contracted 0.4% in the first quarter, tipping the nation into its second recession since 2009. Spanish banks’ non-performing loans as a proportion of total lending jumped to 8.16% in February, the highest level since 1994, from less than 1% in 2007.

The Fed and Bernanke didn’t say no more easing; the FOMC and Bernanke said at the present it isn’t in the cards but on the other hand it isn’t off the table completely. As long as the US is growing, albeit at a snail’s pace, the fed won’t launch another easing. Will Europe fall deeper into recession (depression) and drag the rest of the world down? China’s growth is slowing, the US is growing but employment isn’t improving. In all the data yesterday the Fed’s forecasts were revised higher on GDP growth and unemployment declining. Not the kind of background that warrants more easing.

Given all the present issues impacting interest rates the question now is how much lower can rates fall? Looking at past history on the 10 yr note over the last seven months it’s yield has not been able to hold under 1.90% for any length of time. Since October 11th the 10 yr has traded under 1.90% only 10 days. We can’t ignore it; 1.90% is a solid resistance level and in terms of mortgage rates the present levels are at the best for months.