Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US and German interest rates continued to decline today and stock markets lower in Europe and early trading this morning had the stock index futures weak after a strong sell-off yesterday. There are various reasons the US stock market saw selling yesterday; anticipated earnings in Q3 are expected to be lower, Europe’s relentless inability to deal with its debt crisis and the realization that the Fed’s QE3 announced two weeks ago won’t add many new jobs---if any. That the Fed continues to buy treasuries and MBSs is expected to add jobs has been the most mis-understood belief in years is finally finding believers as the evidence is irrefutable. Yesterday Philadelphia Fed Pres. Plosser and Richmond Fed Pres. Lacker waded in with comments that easing from the Fed isn’t going to accomplish what Bernanke is doing. Lower interest rates have little impact on economic improvement especially when the financial cliff of tax increases and an end to the SS payroll tax cuts loom heavily and trump anything the Fed can do. In Europe yesterday, riots and protests in Spain increased moves into safe German debt and US agency debt. With the Fed’s recent decision to buy $40B a month of MBSs with no announced cap on the amount has made the MBS markets a safe place with higher returns than US treasury rates; MBSs appear to be the place now for investors to find safety. In Spain, the prime minister has struggled to persuade people to accept the deepest austerity measures on record. Unions and protest groups are demanding a referendum on cuts announced by the government. Spain is still dragging its feet in asking the ECB for help, trying to carve out a better deal. Spain’s interest rate climbed above 6.00%, approaching the levels seen before European Central Bank President Mario Draghi offered to buy struggling nations’ debt. Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.” Don’t forget Greece in this never-ending debt crisis. Schools, hospitals, ferries and government services shut down in the first walkout since February. Shops will close from 3 p.m. today to let staff take part in demonstrations. Police fired tear gas near the Greek Parliament after protesters threw fire-bombs as thousands of people joined a strike opposing wage cuts and austerity that Prime Minister Samaras said are vital to keep the euro. Demonstrators streamed into the central square in Athens, opposite the Parliament House, shouting slogans such as “struggle, clash, overturn: history gets written by those who disobey.” The renewed tensions in the EU that had been softened recently on comments from ECB’s Draghi that the bank is ready to buy sovereign debt of Spain Italy and other debt strapped counties, and approval of the plan by Germany’s parliament to do so has ended for the time being. The region is back again as a dominate factor for global equity and bond markets. Europe’s stock markets declining, the US stock market teetering on the possibility of a major sell-off and another run to historic low interest rates; all being driven by the debt crisis in the EU. After weak trading early in US stock indexes at 9:30 the DJIA opened better; the DJIA up 15, NASDAQ -4 and the S&P-1. The 10 yr note at 9:30 at 1.65% -2 bp with 30 yr MBS price +12 bp. The weekly MBA mortgage applications were better last week as mortgage rates fell. The purchase index rose 1.0% in the September 21 week with the refinance index up 3.0%. Mortgage bankers are busier with refinancing than they are for purchases with refinancing making up 81.2% of total applications which is the highest percentage since early August. Down nine basis points in the week, the average 30-year fixed mortgage rate for conforming loans ($417,500 or under) is 3.63% which is a new low for the Mortgage Bankers' survey. August new home sales at 10:00 were expected to have increased 2.1% to 380K units; July sales were up 3.6% at a 372K annualized rate. As reported sales were generally unchanged at 373K units, July at 372K, -0.3%. At 1:00 Treasury will auction $35B of 5 yr notes, yesterday’s 2 yr note auction was OK but not especially strong. Today’s 5 yr should see better demand. Technically the 10 yr note has finally cracked its key averages; now the yield is under the 200, 20 and 40 day averages with the relative strength index moving into bullish territory. The MBS markets, if viewed on their own are extremely over-bought the 10 yr isn’t and negates the over-bought technicals that characterize MBS trading. As long as the 10 yr isn’t running over-bought readings we can ignore the current MBS technical reads; the 10 is still the driver for directional moves in the MBS markets.