Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The very fragile interest rate markets being hit early this morning. The 10 yr note started at 1.84% this morning, up 5 bp points and well over its 200 day average that so far has contained any rate increases. Although over the average, it has been there before but in a day or so managed to retreat below it. As we have note many times here, the bond and mortgage markets have been weak for the past few weeks. Today’s rate increase is additional confirmation that the bond markets are struggling to keep from increasing. Also as we have commented, we are not looking for interest rates to increase much, just that we don’t expect them to decline much either. The Fed’s QE programs should keep rates from increasing, but equally the Fed is pushing the string if expecting interest rates will decline to those lows seen in early September. Still a nervous call, with the fiscal cliff and the presidential election lurking, any decline in confidence would drop stocks and add support to the bond market. Europe still out there, if the current calm ends in disappointment safety moves to US treasuries would support rate markets. 8:30 data; weekly jobless claims were thought to have declined 13K, as reported claims were down 23K to 369K. Last week’s claims were revised from 388K to 392K. Claims have been volatile in the last three weeks as quarterly adjustments have rendered the data somewhat suspect in reality. The wider look shows employers are not firing much anymore but are also not hiring. Employers are unlikely to increase hiring until there is action on the tax cut expirations at the end of the year, and who the President will be and with the structure of Congress next year. Already it is very likely consumer taxes will increase with the expiration of the payroll tax cut that is going to end at the end of the year; neither political party will push to keep it alive. Sept durable goods orders were also out at 8:30. Forecasts were for orders to have increased 7.0%, as reported overall orders were up 9.9%; the overall is largely dismissed due to the volatility of aircraft orders. Ex-transportation orders durables were up 2.0%. August orders were down 13.1% the lowest since 2009. Orders for non-defense capital goods excluding aircraft dropped at a 23.5% annual rate in the third quarter after falling at a 5.9% pace in the three months ended June. Shipments of orders declined 0.3% in September and -1.2% in August; shipment data is used in calculating GDP, Q3 shipments were +5.1%; Q3 shipments -4.9%. The data adds to the increasing view that Q3 isn’t going to show much growth when the advance report is reported tomorrow morning. At 9:30 the DJIA opened up 69, NASDAQ +21, S&P +9. The 10 yr note at 1.84% +5 bp and 30 yr MBSs at 9:30 -23 bp. At 10:00 Sept pending home sales from NAR; pending sales are contracts signed but not yet closed. The estimate was for an increase of 2.4%; as reported sales were disappointing, up just 0.3%. Yr/yr +14.5%, the 17th month yr/yr ales have been better. The housing market data overall has been better than estimates, today’s report doesn’t change that. Lenders are slow to approve loans throwing up unusual exceptions thus slowing the turn time for pending sales. At 1:00 this afternoon Treasury will auction $29B of 7 yr notes; yesterday the 5 yr auction wasn’t well bid. There are many opinions now about the outlook for interest rates; some quite bullish, some not so much. We are in the not so much class. Why are we so concerned rates are not likely to decline? Fundamental data is mixed, is fluid and subject to change on the most recent data being reported. The stock market looks vulnerable but even with the recent days of heavy selling the bond and mortgage markets didn’t get any real traction. Looking at it technically where price and yield action is the current reality as it reflects traders’ and investors’ actions. Since the end of July when the 10 yr and mortgages it their historic lows there have been four attempts to rally the bond market; each time the rally failed at a higher rate than the previous rally. Unless there is a major shift in sentiment, the low mortgage rates seen in the past couple of months are likely to hold any rally in rates.