Everything Fashion: 2013

Wednesday, September 4, 2013

Thursday, August 29, 2013

Wednesday, August 28, 2013

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) gained +33 basis points from Monday's close which caused 30 year fixed rates to move slightly lower. It was our second straight day of +33BPS gains. The Case-Shiller Homer Price Index was a tad higher than market expectations (12.1% vs est of 12.0%). This is not a report that can impact your pricing this morning. Consumer Confidence was also better than expected (81.5 vs est of 80.0%). But both of these reports were overshadowed. We had two stories that provided a lift to MBS. First, Syria continues to grow as a concern among traders. If military action escalates it will provide a large amount of instability and uncertainty in the region and will cause (as all military conflicts do) a rush to the safe haven of our boring bonds. Secondly, its our debt ceiling. Treasury Secretary Jack Lew stated that we would hit our debt ceiling in October which is sooner than market had forecast. The last round of talks ended in our sequester and traders are concerned that the President and Congress are just as dysfunctional now as they were last time. As a result of the escalation of concern over a probable military strike in Syria, MBS reached their best levels of the day at +40BPS at 2:00EDT. We had a 2 year U.S. Treasury auction. Results: $34 billion at 0.386% with a bid-to-cover ratio of 3.21 vs. the recent avg of 3.48. As we have discussed, this is too short of a term to impact longer bond prices.

Wednesday, August 21, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) gained +62 basis points from Monday's close. This almost erased Monday's sell off of -68BPS, so far this week the net effect is that pricing is moving sideways. It was our second straight day of no major economic reports or Treasury auctions yesterday to guide traders. MBS moved upward right out of the gate, recovering some lost pricing after Monday's big sell-off. The reason for this? A temporary surge in demand from the emerging markets as fear of a Fed taper and subsequent higher U.S. rates, has the emerging markets scrambling to lock in some lower rates for their governments.

Tuesday, August 20, 2013

Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -68 basis points from Friday and closed at their worst levels of 2013 which means that you saw your highest rates of 2013. MBS started the day selling off (worse pricing for you) as speculation among bond traders that the Fed would begin tapering their monthly MBS purchases on Sept 18th continued to mount. There were no economic release or Treasury auctions. Once again, the stock market and bond market moved in the same direction (both sold off). If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Monday, August 19, 2013

Mortgage Rates

Mortgage Rates We have a very light week for economic releases with Existing Home Sales and Weekly Initial Jobless Claims being the most important. The most impactful events this week will not economic reports but Fed events. Wednesday's FOMC minutes will be a major driving force in pricing as traders look to see how much traction tapering talk had at the last FOMC meeting. Thursday and Friday the market will focus on the Jackson Hole Wyoming meeting as Central Bankers and economists from around the world attend the retreat. Traders will be focusing on any discussion on the timing of the Fed's tapering of bond purchases and who the next Fed Chair will be. Sentiment continues to mount that the Fed will taper in September. We will need some new commentary from the Fed's talking heads that changes trader's minds from expecting a taper in September to December for MBS to see any improvement in pricing.

Friday, August 16, 2013

Mortgage Rate

Lock Advice 7-Day Neutral 7-15 Day Locking 15-30 Day Locking Mortgage backed securities (MBS) lost-49 basis points from Wednesday's close which caused 30 year fixed rates to move upward. MBS have now lost a big -135BPS from Monday's open to yesterday's close. Once again, we started the day selling off before our first dose of economic data even hit due to the German Sund (there version of our U.S. Treasury 10 Year note) saw their yields shoot up on continued optimism for growth in Germany and in Europe. This zapped money out of U.S. bonds which caused MBS pricing to rise. Then, Initial Jobless Claims were much better than expected (320K vs estimates of 335K) and hit a 6 year low. This is the type of data that traders think will cause the Fed to taper in September which of course pressured MBS further. enough to reverse the course of the morning's sell off.The Home Builder's Index was much stronger than expected (59 vs est 56) could count on these moving in opposite directions? They actually have been moving inthe same direction more often than not since April. This tells us that these markets are not as tethered as they once were and in many cases operate independently of each other. The stock market was under pressure due to earnings reports from CISCO and Walmart. The bond market was down due to strength in Europe,a better than expected Initial Weekly Jobless Claims report - which in turn led to great speculation about the Fed tapering in September. We had a mixed bag of economic data this morning. Both Building Permits and Housing Starts improved from their prior reading but came ina litue lighter than market expectations. These reports do not have the same impact as they did 5 years ago and probably wont until we get some readings consistently above 1M. Unit Labor Costs rose, this is not a big market mover but needs to be closely watched moving forward. Ifthis is a trend, then it is inflationary in nature and therefore negatiw for bonds longer term. Non-Fann Productivity was much better than expected (0.9% vs 0.5%). Now, normally this would cause MBS to rally. Because bonds love strong productivity levels. But offsetting this data was the fact that the prior reading of 0.5% was revised downward to -1.7%. We still have our biggest report of the day, Consumer Sentiment hdex due out just before 10EDT today. Pre-Market Status: Neutral. Overall, MBS did not really move on this morning's data. It looks like our floor of support is going to hold for the second straight trading session. It is all on today's Consumer Sentiment Index reading this morning. If we get a stronger than expected number, then it could provide enough momentum for us to break below our support level which would be ugly for your pricing. lfwe get a weaker than expected number, we could make up some lost ground from yesterday.

Thursday, August 15, 2013

Mortgage Rates

Wednesday, August 14, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -68 basis points from Monday's close which caused 30 year fixed rates to move upward for the second straight trading session. MBS started the day with a -36BPS sell off (higher for you) even before the first U.S. economic report hit the wires. This was partially due to a carry over from Monday's momentum that was driven by tapering fears in the bond market. It was also partially due to a better than expected Sentiment data out of Germany. Remember, as we get better news out of Europe...MBS will sell off causing mortgage rates to rise. We had a mixed bag with yesterday morning's economic data. The headline Retail Sales data came in just a little lighter than market expectations (0.2% vs est of 0.3%) but the prior period was revised upward from 0.4% to 0.6%. Retail Sales Ex Autos were 0.5% vs est of 0.4%. Still, Retail Sales were up and not down and that also provided some slight pressure on pricing. Import Prices were lower than expected (0.2% vs 0.6%). This was very low if viewed on an inflationary basis and a slight positive for bonds but this report and the weaker than expected Business Inventories were overshadowed by the traction that Europe is gaining. The theme for yesterday was two-fold. 1) Bond traders' speculation that the Fed would begin tapering in September and 2) Growing sentiment among economists that Europe is about to emerge from their recession.

Tuesday, August 13, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -26 basis points from Friday's close which caused 30 year fixed rates to move upward. MBS started the day on an upswing, primarily due to speculation about the upcoming German GDP report. By then end of the day, MBS had sold off -53BPS from our intra-day high. Besides pulling back for technical reasons, MBS sold off in the afternoon after the economists at the San Francisco Fed released a report estimating that the asset purchases (Treasuries and MBS) procured via QE3 have added only "a moderate boost" to economic growth. The economic letter, written by Vasco Curdia and Andrea Ferrero, senior economists at the San Francisco regional bank, focused on the Fed’s second round of asset purchases: $600 billion of long-term Treasuries purchased between November 2010 and June 2011. The economists said the purchases added about 0.13 percentage point to real GDP growth. And without the guidance from the Fed that rates would be held close to zero, QE2 would only have added 0.04 percentage point to growth, the economists found. Essentially, traders view this as the Fed nearing tapering in September since the "bang for the buck" doesn't seem to be there. And of course (not to beat a dead horse), the greater the threat of a taper in September....the more pressure on MBS and therefore, the higher the mortgage rate.

Monday, August 12, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) gained +0 basis points from last Friday's close which caused 30 year fixed rates to move sideways. So, for the past two weeks, MBS have moved only +8BPS which have kept mortgage rates fairly steady. Mortgage backed securities traded in a tight range and we avoided the major swings in pricing that we had in the prior week. We had light week in terms of the number of economic releases that hit the market and reports that were released were a mixed-bag. ISM Services came in much stronger than expected (56.0 vs est of 53.0) but Wholesale Inventories disappointed (-0.2% vs est of +0.2%). Initial Weekly Jobless Claims were very close to market expectations (333K vs est of 336K). So, the economic data didn't really drive our pricing last week. Instead it was Treasury auctions and Fed speak that were the major force in bond trades. We had three major U.S. Treasury auctions with the market focusing on the 10 year note and 30 year bond. Last week was all about the Fed and jobs. Both the 10 year and 30 year auctions came off weaker than their recent averages as measured by their bid-to-cover ratio but were still strong enough to keep MBS pricing up. Talking Feds: We had six different speeches by different Federal Reserve members, but few of them were voting members. Essentially, they all said the same thing: 1) the Fed needs to cut back their monthly bond purchases of Treasuries and mortgage backed securities, 2) it will most likely happen in 2013, 3) they need to see more economic improvement from the second half of this year before they move to taper and 4) they would not give a specific date for the first taper. The fact that there was no specific date for the Fed to begin tapering kept MBS at an elevated level which kept rates low.

Friday, August 9, 2013

Mortgage Rates

Mortgage Rates The benchmark FNMA 3.5% August coupon gained +13 basis points from Wednesday's close which gave a very small improvement to pricing. Initial Jobless Claims dropped lower and slightly beat the consensus estimates (333K vs 336K). This ls a nice level and is generally negative for MBS. But offsetting that headline data snippet is the fact that the prior week was revised upward and the Continuing Claims were worse than expected. As a result MBS rallied (better pricing for you). We reached our best levels of the day +30BPS at 11:45EDT. Many of you received a reprice for the better after that point But MBS started to retreat from their highs after the 30 year Treasury bond auction results were released at 1:05EDT. The bid-to-cover ratio (a key measure of demand) fell from the recent average of 2.55 down to 2.11 for this auction. This was negative for MBS and the benchmark FNMA 3.5% August coupon pulled back -21BPS from our highs as a result (worse pricing for you). MBS still closed in positive territory for the day but clearly our rally has "topped out". We issued a Special Report that informed you that we would be completing the monthly bond coupon rollover from August to September Friday morning.

Wednesday, August 7, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -13 basis points from Monday's close and traded in a fairly narrow range that was only -34BPS wide from our highs to our lows. The stock market, as measured by the DOW lost -93 points AND MBS are trading lower at -14BPS. This once again demonstrates that stocks and bonds are more often moving in the same direction. Our Trade Balance was a smaller deficit than expected. This does show some additional economic improvement and normally would have pressured MBS more but did not materially impact MBS pricing. The Economic Optimism Index was 45.1 vs est of 47.9, this is another report that doesn't usually impact pricing. We had a 3 year U.S. Treasury note auction. Results: $32 Billion at 0.651% with a bid-to-cover ratio of 3.21. That measurement of demand was lower than our last 10 year auction at 3.44. Talking "Feds": The President of the Chicago Fed, told reporters he expects growth in the second half of the year to accelerate to a 2.5% annual growth rate, from a paltry 1% rate over the past three quarters, and reach over 3% growth rate in 2014. Based on this forecast, the central bank is “quite likely” to slow down its $85 billion a-month asset purchase plan “starting later this year,” Evans said. The Chicago Fed president said he could not predict exactly at which meeting the central bank would start to taper. “I couldn’t tell you exactly which month that will be,” Evans said. “We need stronger evidence of accelerating growth, a little more momentum,” he added. “We’re not far from that.” As we have discussed several times, the market fully expects some sort of taper by the end of the year. The only question is: Will it be September or December? From a technical perspective, MBS have now traded below our proprietary ceiling of resistance for the tenth consecutive trading session.

Friday, August 2, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -99 BPS from Wednesday's close. We received more jobs data yesterday. Initial Jobless Claims were much lower than expected and dropped 19K from the previous week. The more closely watched 4 week moving average dropped 4,250. This coupled with Wednesday's strong ADP Private Payroll report once again had traders thinking that Friday's Non-Farm Payroll Report will be stronger than previously expected. As a result, MBS sold off (worse pricing for you). ISM Manufacturing was much stronger than expected (55.4 vs est of 52.0). This added fuel to the fire as traders speculated that Friday's employment data would improve. Construction Spending was down and that would have normally pressured MBS and helped mortgage rates but the prior reading was revised upward and so it was a wash.

Thursday, August 1, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com MBS sold off -52BPS (higher rates for you)on stronger than expected ADP Private Payrolls (200K vs 182K Est) and then we got hit with a much better than expected 2nd QTR GDP number (1.7 vs 1.2 estimate). We had a decent Chicago PMI report but it was less than market expectations and helped MBS to climb off of our lows for the morning and stay above our newest support level. There were no surprises with the FOMC meeting. They left their key interest rate unchanged and reaffirmed their previous guidance that they could continue to purchase $45 billion of U.S. Treasuries and $40 billion of GSE MBS each month. They also reaffirmed that they would increase or decrease the level of monthly bond purchases if they thought the economic data would support it. You can read the Fed's policy statement here: http://www.federalreserve.gov/newsevents/press/monetary/20130731a.htm As a result, MBS rebounded and rallied and moved back into positive territory. The FNMA Benchmark 3.5% August coupon moved from -30BPS at 2:00EDT to +30BPS by 3:15EDT...that is a +60BPS swing (better rates for you). This rally is not to be trusted though. As we stated, there was no new information yesterday and most likely their statement was prepared prior to baking in yesterday's ADP Private Payroll report. IF, Friday's Non-Farm Payroll report mirrors that of yesterday's ADP report, MBS will give up all of yesterday's late rally...so that is your risk vs. reward.

Tuesday, July 30, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The benchmark FNMA 3.5% August coupon lost -11BPS from Friday's close. We had a fairly quiet day...perhaps the "calm before the storm" this week. Pending Home Sales were better than expected (-0.4% vs -1.0%) and this is during the period where mortgage rates where near their highest of 2013. But MBS were not materially impacted by this report. From a technical perspective, MBS traded in a very tight range that was only 24BPS wide from our highs to our lows. Once again appetite for MBS decreased at the top of our trading channel which is our ceiling of resistance. However, the rest of the week is packed with highly influential economic data and other events that can significantly impact mortgage rates movement. There are seven economic reports that may affect mortgage pricing in addition to another FOMC meeting that certainly has the potential to cause chaos in the financial and mortgage markets. There is important economic data scheduled for release each of the remaining four days, so there is a strong likelihood of seeing noticeable mortgage rate movement several days, with more than including an intra-day revision. Overall, I am expecting to see an extremely active week for the financial markets and mortgage rates. I think that the most important day is either going to be Wednesday due to the GDP release and FOMC adjournment or Friday with July’s employment numbers being posted.

Monday, July 29, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -49 basis points from last Friday's close which caused 30 year fixed rates to move higher. This ended the bond rally that had lasted for the two weeks prior to last week. We had a spread of 124 basis points between our highs and lows of the week. As we have discussed, MBS sell off when there is positive economic news. We certainly could have sold off even more given last week's data with Durable Goods Orders much stronger than expected (4.2 vs 0.5) and the Consumer Sentiment Index rising from 84.1 to 85.1. Existing Home Sales missed the market expectations but was still robust. New Home Sales enjoyed some nice gains in terms of unit sales and price increases. Demand for our 7 year Treasury auction saw some decent demand but our 5 year and 2 year auctions saw decreased demand. MBS would have lost more ground (even higher rates for you) if it weren't for a WSJ article that speculated that the Fed would change their language at this week's FOMC meeting to calm the markets that they would not be increasing their rates for a long time. We agree. They will certainly leave their Fed Funds rate alone but they will eventually have to start to pull back on bond purchases and those bond purchases are what impacts your mortgage rates...not their Fed Fund rate.

Thursday, July 25, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Mortgage backed securities (MBS) lost -53 basis points from Tuesday's close which caused 30 year fixed rates to move higher. The benchmark FNMA coupon has now lost -88BPS from Monday's highs. MBS were under pressure right from the first trade as they tanked -34BPS right out of the gate.Traders have been selling off of their positions as they no longer believe that the benchmark FNMA 3.5% August coupon can sustain their lofty levels of Monday's intra-day high. New Home Sales hit a five year high as they rose 8.3% in June. The seasonally adjusted annualized rate of 497K units is still a very small piece of the housing picture and so this report doesn't have the impact on pricing that it once did. But still it was positive economic news and did provide a light amount of pressure on pricing. The sell off of MBS was accelerated in response to the Flash Eurozone PMI rose to 50.4 (an 18th month high). A reading above 50 shows economic expansion. U.S. based bonds such as MBS have been a huge beneficiary of European weakness - so when European data surprises to the upside, U.S. bonds sell off. Which is what happened here. We had a 5 year Treasury note auction and the results were released at 1:05EDT. Results: $35 billion at 1.41% with a bid-to-cover ratio of 2.46 which is weaker demand than the 2.57 ratio of the last 10 year note auction. This also pressured MBS and drove us to our worst pricing levels of the day at 1:46EDT which was -82BPS from yesterday's close. But there was some good news - we did find a new temporary bottom and did get a nice bounce of that support level as MBS rallied from -82 BPS to -54BPS by 3:00EDT. That is a +28BPS improvement in pricing from our worst levels of the day.

Wednesday, July 24, 2013

Mortgage Rates

Mortgage Rates Bounce Modestly Higher Mortgage rates bounced slightly higher today, bringing them almost perfectly back in line with Friday's levels. Trading conditions in the underlying 'mortgage-backed-securities' and US Treasuries markets were underwhelming at best. Just as there hasn't been much by way of conviction as rates have been falling, today's bounce higher was similarly incidental. The day to day movements in rate continue to be much smaller than recent averages (or perhaps it's better to say they've been more "normal" whereas recent averages have been extreme from May through early July). Whatever the case, prevailing rate quotes remain in the same situation as yesterday where the average may be 4.375, but the adjacent rates of 4.5 and 4.25 will make more sense in terms of best-execution. So far, this week has adhered to the notion that markets will be far more interested in next week's events. Today was one of the two more likely days to be slow and uneventful. Although tomorrow offers slightly more in terms of market moving potential, we could be waiting until Thursday or Friday to see what the ultimate impact will be. As I noted last week, the recent run of good luck for rates looked more like a 'leveling off' process than the creation of new momentum toward lower levels. That makes yesterday's lows like the floor marking the bottom of that process. If we remain above it tomorrow, it's that much more likely to remain solid until next week's heavier events have a chance to break it. To be perfectly clear though, those heavy events can also reinforce the floor (there's nothing to know about them ahead of time beyond the fact that they have lots of potential energy).

Tuesday, July 23, 2013

Mortgage Rates

Mortgage Rates Hit July Lows After Weak Housing Data Mortgage rates were lower again to begin the week as weaker-than-expected economic data helped rates improve slightly in the morning. The overall level of activity in bond markets that underpin mortgage and Treasury rates remained subdued, but the trading levels were strong enough for a few lenders to offer a mid-day rate-sheet improvement on top of the already stronger rate sheets this morning. The result is an average top-tier rate (best-execution) that's now closer to 4.375% compared to last week's 4.5%. But the reason for that is more complicated than it seems at face value. The reason has to do with the two key components of mortgage rates. The obvious component is the rate itself. This is the interest rate that would appear on a Good-Faith Estimate or on closing documents--also known as the "note rate." For most mortgage rate watchers, this is simply "the rate." It's the singular answer most people expect when they ask "where are rates" or "what's the 30yr fixed rate today?" But it's not the interest rate. The actual rate of interest paid on a mortgage will be a factor of the note rate and the upfront costs. Most upfront costs are what they are based on the state in which the transaction is taking place, the time of month you close, and the entities involved. Most of them can't be changed based on how you choose to structure your loan. The "discount" component (or "points"), however, usually can be changed, provided it's early enough in the process. The concept behind points is actually not complicated. They provide an opportunity to compensate the lender providing the money for your loan in lieu of some of the monthly interest that would also be compensating the lender. Pay more now or more later. Your choice. In an environment where rates were generally falling for the past several years, it didn't make as much sense to most borrowers to pay out of pocket costs to refinance if they'd likely have the opportunity to refinance again in the not-too-distant future. Now that rates are rising (or at least no longer assumed to be falling indefinitely), paying more closing costs up front may make sense. But some rates make more sense than others. For MOST lenders, 4.5% and 4.25% make more sense than 4.375%. 4.5% would result in no origination fees and no discount points for most top tier borrowers. 4.25%--though likely adding more upfront cost to the picture--brings the monthly payment down enough that the cost would be recouped in less than 5 years. It takes at least another year to recoup costs associated with moving to 4.375% only. In other words, for borrowers with the means to pay more upfront, 4.25% may look like the best bet, while others will be better suited by the lowest possible upfront costs and a 4.5% rate. Again, this isn't the way the numbers will tumble at every lender, and if your scenario isn't perfect, the 3 rates in the example might half a point higher. The same dynamic between the three rates closest to your current quote may or may not exist, but your lender will be able to tell you if moving up or down in rates/points is possible and how the numbers would tumble. Just divide the extra cost by the monthly payment savings to determine the time it takes to break even.

Monday, July 22, 2013

Mortgage Rates

Mortgage Rates What happened last week? Mortgage backed securities (MBS) gained +131 basis points from last Friday's close which caused 30 year fixed rates to move lower. This marks the second straight week of over +100 BPS gains in the benchmark mortgage backed security and therefor, lower mortgage rates. We started the week off with a rally as MBS climbed off of their lows after Retail Sales came in much lower than market expectations. Bonds generally rally (better rates for you) on weaker economic data. But it was another week that focused on Fed Chairman Ben Bernanke. Bernanke testified before the House and Senate last week as part of his semi-annual monetary policy report. As we have been discussing for some time, traders are very focused on the timing of when the Federal Reserve will begin to reduce the amount of monthly Treasury and MBS bond purchases. MBS rallied as traders speculated that Bernanke's most recent comments pointed to the Fed waiting longer to "taper" their monthly purchases. The prior speculation was that this tapering would begin in September. The change in trader sentiment is due to Bernanke's comments that tapering will occur once the economic data (with particular focus on the labor market) shows enough of an improvement and traders currently do not perceive that there is enough economic improvement yet and so, their projections on the timing of the tapering is shifting for later down the road. Of course, this sentiment among traders could change next week. MBS also received renewed interest from foreign investors as concerns mounted about Italy and Greece being able to meet their latest round of bailout requirements. From a technical perspective, we closed above the 25 day moving average on Friday for the first time since April. What is on the agenda for this week? Date Time (ET) Economic Release Actual Market Expects Prior 22-Jul 10:00 AM Existing Home Sales - 5.28M 5.18M 23-Jul 9:00 AM FHFA Housing Price Index - NA 0.70% 24-Jul 7:00 AM MBA Mortgage Index - NA NA 24-Jul 10:00 AM New Home Sales - 481K 476K 24-Jul 10:30 AM Crude Inventories - NA -6.902M 25-Jul 8:30 AM Initial Claims - 328K 334K 25-Jul 8:30 AM Continuing Claims - 2990K 3114K 25-Jul 8:30 AM Durable Orders - 1.50% 3.70% 25-Jul 8:30 AM Durable Goods -ex transportation - 0.40% 0.50% 25-Jul 10:30 AM Natural Gas Inventories - NA 58 bcf 26-Jul 9:55 AM Michigan Sentiment - Final - 84.2 83.9 A week without Bernanke? What will we ever do? The bond market will get a breather from all-Bernanke-all-the-time. The biggest reports of the week will be Initial Jobless Claims and Durable Goods Orders. Last month, MBS sold off sharply (worse rates for you) in direct reaction to a very strong reading in Durable Goods. So, a variance from market expectations can really move your pricing. We do have three U.S. Treasury auctions this week: 07/23 - 2 year note 07/24 - 5 year note 07/25 - 7 year note - most important of the three

Wednesday, July 17, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Bernanke’s prepared text was out at 8:30 this morning (way early) before his 10:00 appointment at the House Financial Services Committee. He is saying that the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant. “If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.” If the economy improved faster than expected, and inflation rose “decisively” back toward the central bank’s 2% target, “the pace of asset purchases could be reduced somewhat more quickly,” he said. The Fed “will be holding its stock of Treasury and agency securities off the market and reinvesting the proceeds from maturing securities,” Bernanke said. The strategy “will continue to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.” On the text release the 10 yr note declined to its first key chart resistance at 2.50%, the 20 day moving average. MBS prices were generally unchanged prior to 8:30 but by 9:00 up 31 bps frm yesterday’s close. He didn’t say the Fed would continue top purchases, nor did he say the Fed was about to begin tapering. As it has always been it is data dependent and after his gaffe in May he has re-trenched to the bunker with Greenspan-like statements; keeping all options open and successfully stabilized the bond and mortgage markets. The Q&A frm the Committee will be critical pending how the questions are asked and how he responds; likely starting about 10:00 this morning. The release of the prepared text was in itself a surprise being so early. At 8:30 June housing starts were quite weak compared to forecasts. Starts were expected to up about 4.0%, as reported starts fell 9.9% to just 836K units annualized. The headline looks bad but most of the decline came in multi-family starts down 26.2%; single family starts were down 0.8% to 591K. June building permits were expected to be up about 3.0%, permits fell 7.5% t 911K units. Some of the decline in starts may have been due to very wet weather in June but that isn’t the real picture; the recent increase in interest rates is more likely slowing starts. A counter data point frm yesterday’s NAHB July housing market index that increased to the best level since Jan 2006. Weaker starts and permits is adding to the early improvement this morning. The weekly MBA mortgage applications were a little better last week as interest rates stabilized and declined a little. The overall applications index down 2.6% but purchases increased 1.0% for the first time in four weeks. The re-finance index fell 4.0% as rates moved higher and closed out those that sat there waiting for lower rates. The early release of Bernanke’s prepared text bolstered the bond and mortgage markets and drove the 10 yr note down to 2.47% at 9:30. The DJIA opened +21, NASDAQ +8, S&P +3. 30 yr MBSs +43 basis points. Finally, at least at the moment, the 10 yr and MBSs have broken their respective moving averages. Looks good for now but there is still concern that the Fed will begin tapering this year. Until this morning the general consensus was that the Fed would begin tapering by Sept. , for the moment that consensus is lessening in terms of the timing. Will House Committee members drive him to a more specific time frame? Likely they will try but Bernanke will keep the guessing going. The 10 at 2.47% is right where it traded when the June employment report was released; after climbing to 2.65% then backing to 2.47% the June employment report sent the 10 to 2.73%. Now back to that key 2.47% but slightly below its 20 da average. The 10 yr and 4.0 August FNMA coupon both now at very significant levels.

Tuesday, July 16, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally a quiet open this morning. Markets are likely to sit somewhat still through the day today ahead of the beginning of Bernanke’s testimony tomorrow at the House Financial Services Committee; Thursday he moves to the Senate Banking Committee. The obvious topic is what is he thinking now about beginning the end of the QEs? Generally most all market participants are expecting the Fed to start tapering soon, the question is when? Most of the talk has been centered on September for the first cut in the $85B of monthly purchases, some think a cut of $20B a month. Bernanke has been going back and forth with his comments since June 19th at his press conference that shot interest rates higher when he said the Fed was ready to start pulling back because the economy was improving and the labor market was gaining momentum. Then after the bond market spiked and likely surprised him, is next speech he back-peddled somewhat; saying the employment situation wasn’t as good as the data was implying. Low wages and part-time workers count as employed but won’t ass much to consumer spending; also the percentage of would be wage earners is the lowest on record---only 63% of working age people are actually in the labor markets. 8:30 this morning June CPI was reported up 0.5% a little higher than 0.4% expected; when food and energy are subtracted CPI up 0.2% in line with estimates. June saw a big increase in gasoline prices. Yr/yr CPI +1.8%; yr/yr core +1.6%, neither are an issue being well under the Fed’s 2.0% target. Bernanke worries that inflation isn’t strong enough, we have argued that inflation is too low and is a drag on economic growth. Of course inflation levels over 2.5% would be a worry point for fixed income investors but with most of the global economy swooning now there is little reason to worry about increasing prices except for gasoline with crude oil now at $107.00/barrel. At 9:15 June industrial production was expected +0.3%, it was right on at +0.3%. June factory usage (capacity utilization) was thought to be at 77.7% frm 77.8% in May, as reported a little better at 77.8%. There was no market reaction to the data. The final data today at 10:00, July NAHB housing market index estimates at 52 unchanged frm June, the index increased a whopping 6 points to 57 (June revised to 51 frm 52); the index is now the highest since January 2006. The components within the data were also higher than expected. The reading over 50 is considered expansion. A solid reading but no immediate response. Not much matters today ahead of Bernanke tomorrow. At 9:30 everything flat; the DJIA opened +2, NASDAQ +2, S&P unch; 10 yr note 2.54% -1 bp, 30 yr MBS price +3 bps. The day will be a waiting day ahead of Bernanke tomorrow and Thursday. After running up to 2.73% the 10 yr has come back about 20 basis points in rate and mortgage rates have eased a little. The markets are still technically bearish; the 10 yr needs to close below 2.50% and it is getting close at 2.54%, we still haven’t seen a lot of new buying just short-covering that has pushed rates down. The bond market has been led around by Bernanke and other Fed officials coming out with conflicting comments. It isn’t clear now how low the 10 yr and mortgage rates can fall but the more macro outlook remains the same, the lows in mortgage rates are unlikely to been seen again. As long as the economic outlook continues to improve demand for low yield fixed income investments will lag. One factor that helps is that inflation is not a factor in the present outlook.

Monday, July 15, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 this morning the 10 yr note was down 7/32 (22 bp) at 2.61%. At 8:30 June retail sales were up 0.4% against forecasts of an increase of 0.8%; ex auto sales unchanged against estimates of +0.5%. It was all auto sales in June, nothing on the overall sales in the month. Also at 8:30 the July Empire State manufacturing index was expected to be at 5.0, as reported the index increased to 9.46 frm 7.84 in June. The 10 yr turned around and at 8:45 up 3/32 (9 bp) at 2.58% -1 bp. Already with the week only a couple of hours old there is volatility. Intraday volatility in the bond and mortgage markets continues to be high with swings back and forth through the day; uncertainty is another way of looking at volatility. This week there are a number of key economic reports but the main event this week s Bernanke’s testimony on Wednesday and Thursday; on Wed at the House Financial Services Committee and Thursday at the Senate Banking Committee. He has managed to twist interest rate markets into a tight knot with his recent comments, on June 19th saying emphatically that the Fed was preparing to begin removing the Fed’s support of the bond markets by slowing its monthly purchases, that sent interest rates spiking higher, then in a speech early this month retracting a little after he was surprised at the swift increase in mortgage rates. The housing sector being the strongest sector in the economy, mortgage rates increased 5 basis points; the reaction to his remarks early this month stabilized mortgage rates in a narrow range. His testimony this week is critical, he will be grilled hard by members of the committees on the economic outlook and the Fed’s intensions. At 9:30 the DJIA opened +12, NASDAQ +1, S&P +1; 10 yr note yield 2.57% -1 bp and 30 yr mortgage prices +5 bps. Already volatility; early this morning the 10 yr at 2.61% and 30 yr MBS price -17 bp at 8:30. (see below for 10:00 prices) A lot of focus these days on China and the slowdown that continues, but this morning their GDP expanded 7.5% in the second quarter, its economy expanded 7.7% in Q1. China is slowing but obviously still a lot better than here in the US. The GDP report pushed Europe’s stock markets better. U.K. home sellers raised asking prices for a seventh month to a record in July, according to Rightmove Plc, which said values will increase twice as much as previously forecast this year. At 10:00 May business inventories, expected to be flat frm April, were up 0.1%. Jamie Dimon told investors last week that rising interest rates could trigger a “dramatic reduction” in the bank’s mortgage profits. But according to its own analysts, the U.S. housing market will extend its recovery regardless. Refinancing, which has slumped to the lowest in two years, may drop by as much as 40% in the second half of this year according to Chase’s analysts. Now re-fis are accounting for 64% of apps according to the most recent MBA applications data last Wednesday; at one point re-finances accounted for 75% of all apps. Based on that estimate, to keep volume at the present levels purchases would have to increase 25% frm present levels with 30 mortgage rates hovering in the 4.50% to 5.00% area. We are talking to a number of people and noting a number of comments in the media that the present levels of mortgages and treasuries are seen as being supportive to interest rate markets at current levels, and that some investors are beginning to sniff around with a little buying od long dated treasuries. The rationale is very low inflation outlooks and a slow economic growth outlook. 2.60% on the 10 yr is a lot better than 1.60%, with the Fed committed to holding the FF rate at near zero it makes a decent return when an investor can borrow at close to 1.00% and buy 120 yrs at 2.60%. I am not saying we buy into that thought but it is getting some attention since the 10 yr and mortgages have been contained in the current ranges. Technically, the bond and mortgage markets remain bearish; neither the 10 yr or 4.0 FNMA coupon has been unable to crack their respective 20 day averages, the first level we deem critical. The FNMA 20 day at 103.80, the 10 yr 20 day at 2.50%. The 10 yr 14 day RSI at 61 (50 is the pivot). There is an increasing number of bullish comments that rates may decline a little more frm present levels; I am not arguing against that thought, there is some logic behind it but until the market itself demonstrates it we will hold to our bearish outlook based on price action, not comments.

Thursday, July 11, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very late yesterday afternoon in the Q&A after Bernanke’s speech he responded to questions about the Fed’s intentions. Bernanke blew up the bond and mortgage markets a month ago with his comments the Fed was essentially preparing to begin reducing the monthly purchases of treasuries and mortgage-backed securities. He and the majority of FOMC members were seeing the economy improving and the Fed wouldn’t need to continue to its $85B of monthly purchases. Since his remarks on 6/19 the 10 yr note rate increased 50 basis points and 30 yr mortgage rates climbed 60 basis points in rate. Bernanke was obviously shocked at the swift and deep market response; yesterday more market manipulation. He called for maintaining monetary stimulus. Bernanke said yesterday that “highly accommodative monetary policy for the foreseeable future is what’s needed” and minutes of the Fed’s June meeting showed officials would want to see more signs of job growth before starting to scale back their $85B-a-month bond purchases. The Fed is continuing to manipulate markets with contrary comments; one month after saying the Fed was about to reduce its QEs, now he told markets, not so fast people. The 10 yr note rate at 4:45 yesterday afternoon at 2.68%, this morning 2.58%; 30 yr MBS from prices at 4:45 yesterday have increased 54 basis points. This morning at 8:30 weekly jobless claims were expected to be down 6K, claims actually increased 16K to 350K. The 4 week average increased 6K. The report falls right into Bernanke’s remarks yesterday that the economy still needs stimulus. The jump in claims however, may be due more to auto plants that close for re-tooling for the new model year. At 9:30 the DJIA opened into a new all-time high, up 124, NASDAQ +37, S&P +13. 10 yr note at 2.59% -8 bp frm yesterday and 30 yr MBS price +34 bps. At 1:00 this afternoon Treasury will auction $13B of 3 yr bonds, after Bernanke yesterday the auction is likely to see good demand. Yesterday’s 10 yr auction didn’t get strong demand but it was better than previous 10 yr auctions but still didn’t meet the last 12 10 yr auctions averages. There ought to be a “law” that the Fed chairman can’t make speeches and take questions after markets have closed. We are hearing stories that traders were angry that they were unable to get out of their shorts covered. Bernanke set up the huge short positions in the bond and mortgage markets a month ago then late yesterday twisted his remarks almost 180 degrees. What is next? Next week he has to go before Congress for the semi-annual testimony on the economy. Will be pull another rabbit out of his hat? What color might the rabbit be, black or white? It is no wonder that the current bull market in stocks has been characterized as the most hated bull market in history. In the interest rate markets he accomplished one thing, he stopped the climb in rates; it had become so volatile that there was an increasing belief within many corners that the 10 yr was headed to 3.00%. For the moment that thought has been tossed; HOWEVER the reaction in the markets has not changed the technically bearish outlook; everything is still negative. To turn the 10 yr to a bullish technical picture the 10 yr will have to close below 2.50% (2.59% now). Will it happen? We are not about to conjecture given the way the Fed can move markets anyway it wants these days. We still hold that long term rates including mortgage rates will not fall to the lows seen a few months ago. The one thing we are sure of, as we have been saying for weeks; market volatility will remain at very high levels.

Wednesday, July 10, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets started quietly this morning ahead of this afternoon’s triple threat. At 1:00 $21B of 10 yr notes will be auctioned, the demand will be important after the recent increase in rates; at 2:00 the minutes from the 6/19/FOMC meeting that triggered the recent explosion in rates; at 4:10 Bernanke will speak, his remarks will be key to the next move in interest rates---but not necessarily the final word. Since last Friday’s overdone selling in the mortgage area the prices have rebounded and recovered about 60% of the declines. The 10 yr note increased 22 basis points in rate last Friday, but has only taken back 10 basis points in rate (30 basis points in price). Mortgages were hit hard as investors tried to sell the low coupons into a rather dysfunctional MBS market that is so thin prices were swinging in wide moves of 15 to 30 basis points in price every 10 minutes (at least that is how it seemed last Friday). Early this morning the MBA released its weekly mortgage applications data. Mortgage applications decreased 4.0% from one week earlier. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. The unadjusted Purchase Index decreased 23 percent compared with the previous week and was 5 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 64% of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 7% of total applications. The HARP share of refinance applications rose from 34% the prior week to 35%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.68%, the highest rate since July 2011, from 4.58%, with points increasing to 0.46 from 0.43 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.86%, the highest rate since July 2011, from 4.68%, with points decreasing to 0.37 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.37%, the highest rate since September 2011, from 4.27%, with points decreasing to 0.39 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.76%, the highest rate since July 2011, from 3.64%, with points decreasing to 0.41 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 3.40%, the highest rate since May 2011, from 3.33%, with points increasing to 0.54 from 0.31 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +28, both NASDAQ and S&P were unchanged on the open. The 10 yr at 9:30 2.63% -1 bp and 30 yr mortgage prices up just 6 bps frm yesterday’s close. At 10:00 May wholesale inventories, expected +0.3%, declined 0.5%, sales were expected up 0.5% but increased 1.6%. Nice, inventories declining while sales increasing will encourage manufacturers to increase inventory levels. Yesterday the IMF out with reduced growth outlook, the Fund calling into question emerging market growth. The increase in US interest rates has lessened the demand for seeking yield in emerging markets including China and Russia according to the IMF. It is the ripple effect that is spreading as the Fed is seen to be ready to begin slowing the purchases of treasuries and MBSs frm the $85B that began a year ago. Since the 6/16/FOMC meeting and Bernanke’s press conference the same day markets around the globe are seeing increased volatility as investors struggle with the impact of higher rates will have on markets and economies. In the last six weeks investors have pulled $13.5B frm bond funds and $22B in emerging markets stock funds. The new IMF estimate is global growth at 3.1% frm +3.3% in April. In China news out that the central bank may be planning to cut bank reserve rates in an effort to stem the decline in exports that have slowed the growth the world’s 2nd strongest economy. It is supposition at this time though. China has direct impact on our markets; recently China said it wanted to cut its growth rate to fend off inflation but now with exports falling 3.0% and imports declining the central bank, like our Fed is trying to manipulate markets with talk of stimulus. One serious problem facing all global markets now is, where should markets be without the continual stimulus that has effectively removed much of the typical supply/demand equation that normally (in the past) were the guide posts for investors. With the three events this afternoon (see above) markets are likely to remain flat this morning, but pending the news this afternoon volatility may increase n the later part of the trading session. Still all technicals remain quite bearish, don’t make too much out the improvement the last two days.

Tuesday, July 9, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A nice rebound yesterday; the MBS market recovered slightly over half the price declines last Friday on the June employment report. This morning markets opened about unchanged in the bond and mortgage markets with US stock indexes up again in pre-market trading. Today there are no economic releases to think about; at 1:00 Treasury will begin this week’s borrowing with $32B of 3 yr notes. Recent Treasury auctions have seen less demand than the averages, with interest rate higher we will focus attention on the demand. Treasury three-year notes yield more than double their levels in May before the U.S. sells today. 3 yr notes generally don’t fit in our wheel house, we are more interested in tomorrow’s $21B 10 yr auction. European Union officials meet today after finance ministers in the euro area agreed on an aid package for Greece yesterday. Reports today showed Chinese inflation rose more than forecast in June while producer prices fell for a 16th straight month, the longest slump in a decade. Yesterday began the earnings season for Q2; Alcoa, always the first to report, beat estimates and in turn juiced up the idea earnings in the quarter will remain strong. Interesting, most analysts a couple of weeks ago were predicting earnings would not be a good as in Q1. Nevertheless the stock market is betting on strong earnings at the moment. Today should be rather quiet compared the last couple of sessions. There are no data points, and tomorrow the Fed will release the minutes from the 6/19 FMC meeting, always something to consider. While important, it isn’t as important as Bernanke’s speech tomorrow afternoon. After his comments about the Fed thinking about tapering led to interest rates spiking higher on 6/19 (since then the 10 yr note rate has increased from 2.17% to 2.64% at yesterday’s close and mortgage rates up 0.50%), he may try to ease the fears now dominating the bond and mortgage markets. Can he do it? At 9:30 the DJIA opened +68, NASDAQ +14, S&P +9; 10 yr note unchanged at 2.64% but MBS prices up 15 bps frm yesterday’s close. Technically the bond and mortgage markets continue bearish; a nice bounce yesterday and so far this morning but everything is still pointing to higher rates and lower prices. As long as the US equity markets continue to attract investors there is very little reason for investors to move back into treasuries. The Fed fueled the most recent rally when the FOMC provided a positive outlook for economic growth and Bernanke said the Fed was considering winding down its market support. Our advice remains the same it has been for two months now; don’t fight the tape, those that ignore price action will continue to pay the price. Use any improvements as opportunities. Forget those low rates, they are gone and not very likely to fall much frm current levels.

Monday, July 8, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The massive increases in interest rates last Friday on the better employment report may have been too much in too soon a time frame. The markets were thinly managed last Friday as many took the day off leading to increased panic selling. The bond and mortgage markets, already quite bearish, pushed those still hanging on to sell, sending rates to levels not expected this soon in the continual increases in rates. The 10 yr hit 2.73% Friday, up 22 bps in yield and 30 yr mortgage rates up 18 bps in rate to close in on 5.0%. Non-farm jobs were up 195K about 30K more than expected and April and May were revised higher adding an additional 70K jobs than originally reported. At 9:00 this morning some improvement frm the route on Friday; the 10 yr yield at 2.69% down 4 bps; 30 yr mortgage prices +32 bps from Friday’s 151 bp decline. US stock indexes better, pointing to a strong opening at 9:30. Europe’s stock markets all better this morning. Economic data this week is rather sparse. Today at 3:00 May consumer credit is about it for the day. This week Treasury will auction a total of $66B of notes and bonds; the last couple of months the demand at the auctions has not been as strong as the average of the last 12 months, will demand increase now that rates have risen? On Wednesday the minutes from the 6/19/FOMC minutes will be released; it was that meeting and Bernanke’s press conference after the meeting that sent interest rates higher when Mr. Bernanke said the Fed was ready to begin tapering its monthly buying of treasuries and mortgage-backed securities. The minutes will be released at 2:00 Wednesday then Bernanke is scheduled to speak at 4:00 pm, he will likely attempt to calm markets after the recent climb in rates that has completely surprised the Fed, especially Bernanke. How will he frame it? Oh, I really didn’t mean what I said a couple of weeks ago? Not likely, and unlikely he has the power to turn the rate markets around. At 9:30 the DJIA opened +71, NASDAQ +15, S&P +8; 10 yr note 2.68% -5 bps and MBS prices for 30 yr conventionals +47 bps. We expect the bond and mortgage markets will improve this week, but we do not believe that the bearish trend will end. Interest rates are going to continue to increase over time as long as the US economy expands and stock prices increase. That said, at present levels there is value in the fixed income world, at least to certain investors. The price declines last Friday were unreasonable but the action clearly demonstrates how bearish the underlying sentiment is currently. Use any improvements to get deals done now. To change the technical outlook for markets the 10 yr note rate must decline to under 2.50% (2.68% now). Q2 earnings’ season is about to get underway; talk around is questioning whether earnings in the quarter will match the strong earnings in Q1. As long as equity markets continue to increase the outlook for interest rates will remain bearish. How Bernanke frames his speech on Wednesday will have an impact on near term direction for the bond and mortgage markets.

Friday, July 5, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today’s June employment report did not disappoint; always a dart throwing event, the data today followed the normal path of wild deviations from estimates. One thing we can count on with the monthly employment data. The June unemployment rate unchanged at 7.6% (estimates 7.5%), non-farm jobs increased 195K (estimate 165K), non –farm private jobs +202K (estimates 179K). May jobs were revised to +195K frm 175K, April revised up an additional 50K. At 9:00 this morning the 10 yr note traded at 2.65% +14 bp frm Wednesday’s close. At 9:00 the 4.0 FNMA coupon -93 bps, 3.5 coupon -128 bps. US stock indexes higher, DJIA +78 at 9:00 but well off the initial reaction. Retailers, professional and business services, health care and leisure and hospitality businesses led the payroll gains in June. Manufacturers cut jobs for a fourth straight month and government payrolls dropped. The household survey, used to calculate the unemployment rate, showed that more people entered the labor force and most of them were able to find work. According to BLS 177K entered the labor market and 160K were hired. Factories lost 6K jobs in June while construction companies added 13K, the most in three months. Automakers boosted employment by 5,100 workers, the most in four months. Retailers added 37K jobs in June, with most of the increase coming from more hiring at motor vehicle dealerships and home-improvement outlets. Not much good news in Europe; yesterday the European Central Bank President Mario Draghi said yesterday that the risks to the euro-area economy are to the downside as he gave “unprecedented” forward guidance that interest rates will stay low for an extended period of time. The economy in the currency bloc, Germany’s biggest export market, contracted in the six quarters through March. Draghi reaffirmed his prediction for a recovery at a subdued pace later this year. German factory orders unexpectedly declined for a second month in May in a sign that the euro area’s struggle to emerge from its longest-ever recession isn’t improving much. At 9:30 the DJIA opened +111, NASDAQ +24, S&P +11. The 10 yr note at 2.68% +17 bps, 30 yr 4.0 FNMA coupon -103 bps. What will the Fed do now? The obvious is that the Fed will begin tapering soon, but that may not be the final decision. The huge increase in mortgage rates is going to slow housing markets, already a high percentage of would be qualifiers have been left on the sidelines, and possibly slowing growth. Already this morning markets are struggling with the relationship between the new level of interest rates and the impact on the economy. The initial reaction to the 8:30 employment data had the DJIA up over 180 points, at 10:00 the stock indexes were declining from those reactionary highs as traders attempt to measure the economy with increasingly higher interest rates. Could the Fed hold the line and not taper to keep the economy and the housing market frm reversing and slipping in growth because rates are increasing too rapidly? This morning a new high for the 10 yr note at 2.71% up 20 basis points frm Wednesday and more evidence that talking fundamentals won’t get the job done; for all the talk frm various experts that the bond market was a buying opportunity all of our technical models and indicators remained bearish. The take away is simple but to some a mystery; it isn’t complicated, it is just ignoring the talk and focusing on where money is going---that is all technicals are. Where is the money, not who is talking.

Wednesday, July 3, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US treasuries better this morning; overnight the 10 yr yield fell to 2.41% down 7 bps frm yesterday. By 8:00 the 10 yr at 2.45% -2 bps; stock indexes weaker early today. Treasuries getting some support over the roiling in Egypt where the government is about to collapse with the military saying it would negate the constitution if Mursi doesn’t step down, Mursi saying he will not. Why the concern? Because the Suez Canal may be in play disrupting the flow of oil through it; crude oil this morning now over $100.0 at $101.84. In Portugal more turmoil; bonds slumped after two ministers resigned from the government, reigniting speculation Europe’s debt crisis is worsening. Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union. Keep an eye on the EU again, the issue in Portugal suggests countries are struggling to meet the austerity goals. 8:15 the June ADP private jobs were up 188K, better than 165K generally expected; the stock indexes recovered a little and the treasury markets stood still with no movement, the yield on the 10 yr 2.45%. MBS prices at 9:00 unchanged frm yesterday’s 24 bp price decline. The ADP data was the second best of the year. Friday’s BLS June employment report is expected to show private jobs at +179K. At 8:30 weekly jobless claims were -5K to 343K; not much different than what markets were expecting. The four-week moving average, a less-volatile measure than the weekly figures, decreased to 345,500 last week from 346,250. The number of people continuing to receive jobless benefits fell to 2.93 million in the week ended June 22 from 2.99 million in the prior period. The Obama Administration surprised businesses yesterday by delaying the implementation of ObamaCare from the business sector frm 2014 to 2015. Businesses have complained that the law is so convoluted that they would have a difficult time to begin the insurance increase that ObamaCare will create. The delay takes away political fodder for Republicans in the 2014 elections. It isn’t being seen as a political move entirely; the law that impacts businesses is one of the most complex of the entire ObamaCare Bill. May US trade deficit increased to -$45.3B the second highest level on record. The US economy continues to grow while other countries struggle. The trade gap widened to 12.1% frm April, the biggest jump in 2 years. The importance of the increase is that it will subtract the GDP growth in Q1 to 1.6% frm 1.8% as previously reported according to those that focus on such things. At 9:30 the DJIA opened -26, NASDAQ -12, S&P -6; 10 yr note unchanged at 2.48% with mortgage prices general unchanged from yesterday’s closes. At 10:00 the last data before Friday’s June employment; the June ISM services sector index. Estimates were for the index at 54.5 frm 53.7; as reported 52.2 lowest reading since Feb 2010; the employment index improved from 50.1 to 54.1, new orders component at 56.0 frm 58.8. The employment index suggests to some extent a good employment report on Friday. The decline in new orders though isn’t constructive for the economic outlook. Overall not a bad report but certainly not a good one. Earlier this morning the weekly MBA mortgage applications showed re-finances crashed as rates have increased. The overall index -11.7%. Interest rates are rising substantially, choking off demand for refinancing but only limiting demand for purchase mortgages. The refinancing index dropped 16.0% in the June 28 week and is at a two-year low. The purchase index, benefiting from what the Mortgage Bankers Association calls still strong home affordability, has been up and down is down 3.0% in the latest week. The average rate for conforming loans ($417,500 or less) soared 12 basis points in the week to 4.58%. Nothing left now until Friday morning’s June BLS employment data; the current estimates are for the unemployment rate to have declined to 7.5% frm 7.6%, non-farm jobs +161K, non- farm private jobs +179K. As usual the data is not likely to match the estimates; the question for investors and traders, which way will the deviation take? It is unusual to have markets closed the day before the most important data of the month so positioning has to take place today before the early closes in stocks and bonds. The stock market will close at 1:00 this afternoon, the bond market will close at 2:00 PM. We will have a short afternoon report at 2:30 with the day’s closing prices. HAPPY BIRTHDAY AMERICA !

Mortgage Rates

Monday, July 1, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today begins the second half of the year; time flies when we are not having fun. The bond and mortgage markets continue their bearish outlook, unable to improve to even get close to testing our technical models that remain bearish. The economic outlook among economists, analysts and investors is expected to gain momentum albeit slowly as the Fed has been saying. There is no change in sentiment from two weeks ago that the Fed is moving closer to winding down its three year QEs that have driven rates down and ‘forced’ investors into equity markets. The Fed has done a yeoman’s job saving the economy while politicians have simply ignored the reality of needed reforms. China’s manufacturing fell in June, underscoring a sustained slowdown in the nation’s economy as policy makers seek to rein in financial speculation and real-estate prices. An official Purchasing Managers’ Index dropped to 50.1, the lowest level in four months, from 50.8, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today. Spain’s manufacturing index increased, Germany’s economy continuing to improve although today its manufacturing sector showed a little weakness, U.K. government bonds fell for a second day as reports showed Britain’s manufacturing output expanded while mortgage approvals rose, reducing demand for the safety of fixed-income securities. In Japan, where the central bank is rolling out unprecedented stimulus, the quarterly Tankan survey showed big manufacturers turned optimistic in June for the first time since September 2011. Just about all the recent data from around the world are beginning to improve, slowly but improving. With optimism increasing here and overall globally the outlook for interest rates is losing momentum with expectations that rates will continue to increase. This is employment week; always critical but even more so these days as investors and the Federal Reserve sweat over each data point to assess what the Fed will do and when it will do it. Consensus now ahead of this week’s key data is that the Fed will begin to reduce its monthly purchases of MBSs and treasuries. As Bernanke pointed out at his press conference on the 19th what the Fed will do is dependent on how the economy performs over the next few months. This week’s June employment data takes on additional significance in terms of the Fed’s market support. Starting the week; June non-farm jobs are expected +161K, non-farm private jobs +179K and the unemployment rate down to 7.5% frm 7.6% in May. Not bad but not gaining either; job growth is tepid at best averaging about 175K a month. At 9:30 the DJIA opened +88, NASDAQ +30, S&P +11; 10 yr at 2.51% +2 bp with mortgage prices generally unchanged. Early this morning 30 yr MBS prices were down 25 bp but did recover ahead of the 10:00 economic data. Two key reports at 10:00; May construction spending was expected to be up 0.6%, as reported up 0.5%. The June ISM manufacturing index was expected at 50.5 frm 49.0, as reported the index increased to 50.9, pretty much as forecast; the employment component though fell below the pivot 50 to 48.7 the first time under 50 since 2009, new orders component at 51.9 frm 48.8 in May. The ISM manufacturing data, a mixed but generally in line with estimates improved the stock indexes and minor improvement in MBS prices. Not much but the data didn’t encourage any increase in the economic outlook; stocks and bonds improved fractionally based on data not strong keeping the Fed’s tapering frm increasing in importance.

Friday, June 28, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early today the 10 yr note was better with the yield down to 2.47% down 1 bp frm yesterday; it didn’t last however, at 8:30 the 10 yr yield increased to 2.50% with US stock indexes working lower early after the strong improvements over the last few days. Mortgage prices at 9:00 -20 bps frm yesterday’s close. At 9:30 the DJIA opened -72, NASDAQ -11, S&P -6. 10 yr at 2.54% +6 bp and 30 yr MBSs -50 basis points. No real let up in underlying volatility, and it will continue through next week at least. Over the last couple of days, and after the shock to markets frm Bernanke’s comments last week, Fed officials are out to cool off the fears. Three Fed officials yesterday making comments that the Fed was still uncertain about what will happened with the QEs. Bernanke last week said the Fed would begin to taper by the end of the year pending how the economy performs. The Fed’s outlook for the economy is optimistic, that the economy is recovering and the Fed will begin backing away. Since that remark the markets convulsed into panic; interest rates increased, the stock market fell---both on significant moves. Then it was the Fed’s turn to be shocked, Bernanke’s remarks were not expected to crash markets and set of the volatility. Now the Fed is out attempting to calm markets with less hawkish comments from the likes of NY Fed Pres. Dudley yesterday and other Fed officials out making speeches. There has been some relaxation in the bond market, the 10 yr note yield has declined from 2.65% to 2.50% early this morning but the bearish bias remains intact. Unless the US and global economies reverse and weaken the bond and mortgage markets are not likely to improve much. It is all about how the economy performs in the coming months; Bernanke made it clear in his remarks last week that the Fed’s actions moving forward is dependent on data measuring the economy’s performance. Initially no ne chose to focus on that aspect, setting off the hysteric moves last week. Now some balance being worked into the equation, but not much and the market volatility will continue with wide swings. Don’t allow yourself to believe rates will fall much; the trend is for higher interest rates, or at best trade at present levels. Bottom line: the Fed believes the economy is improving, the track record at the Fed on economic forecasting isn’t stellar by any means and markets know it. Taking the interest rate forecasts to its lowest denominator in terms of outlook---it all depends on the economy. Our view, the economy isn’t as strong as the Fed thinks, if we are correct interest rates should stabilize at present levels. That said, it isn’t our view or the Fed’s outlook that is important it is what markets think. Two data points this morning; at 9:45 the June Chicago purchasing managers index, expected at 55.0 frm 58.7 in May, the index declined to 51.6. The decline is counter to the increases seen in other regional indexes as most have been better but Chicago isn’t Richmond, there are many more manufacturing operations in the Chicago region. The reaction sent stock indexes down more but didn’t do lot for the bond and mortgage markets. At 9:55 the final June U. of Michigan consumer index was expected at 83.0 frm 82.7 at mid-month, the index increased to 84.1. The final reading for the May index was 84.5 so on a month to month view the index declined. The report sent stock indexes down more, but didn’t improve the bod and mortgage markets.

Thursday, June 27, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages traded better this morning prior to 8:30 economic data. The 10 yr note at 2.49% -5 bp, 30 yr MBS prices +24 bp frm yesterday’s closes. Weekly jobless claims were expected -9K, as reported down 9K to 355K; the 4 week average declined about 2800 frm last week. May personal income expected up 0.2% increased 0.5%, personal spending expected +0.4% was up 0.3%; April spending originally reported -0.2% was revised to -0.3%. The personal consumption expenditures and inflation gauge increased 0.1%, yr/yr +1.1%. Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.2% in May after a 0.1% decrease in the previous month, The two reports generally in line with estimates didn’t generate any immediate changes in the stock indexes or the bond and mortgage markets. At 9:00 this morning the 10 yr at 2.50% -5 bp, 30 yr MBS prices +30 bps. At 9:30 the DJIA opened +87, NASDAQ +20, S&P +10; 10 yr 2.49% -6 bp and 30 yr MBS price +35 bps frm yesterday’s close. At 10:00, a few minutes ago, NAR reported May pending home sales, expected +1.0% sales were up a huge 6.7%. Pending home sales are contracts signed but not yet closed. Not much reaction to the better report so far. After last week’s wild selling the bond market is settling down at slightly lower rates but the overall bias remains bearish for the bond and mortgage markets. Bernanke’s press conference last week shocked financial markets here and around the world. No one expected he would be as definitive as he was; saying the Fed was ready to begin tapering its QEs as early as the end of this year and would likely be completely done with it by mid-2014. Markets were expecting the Fed’s next move would be to begin backing off of its $85B of monthly purchases of treasuries and mortgage securities but the time frame wasn’t expected to be that soon. Bernanke said the outlook for the economy was improving and as long as the future data confirmed that the easing’s would end. The initial reaction to his comments sent interest rates higher and dropped the stock market in excessive movements. Since then the DJIA has recovered, after falling 800 points the index has increased 200 points since Tuesday and so far this morning up another 130 points. The 10 yr note rate, driver for all long term interest rates, increased from 2.30% prior to Bernanke’s comments to 2.65% and 30 yr MBS rates increased 25 bps in a matter of a few sessions. Some retracements in markets was likely and is being motivated by comments frm other Fed officials and central banks from the ECB to the Bank of China in efforts to calm markets. We warned market volatility would increase and will likely be touchy now until the June employment report scheduled for July 5th. Most volatility will be in the bond and mortgage markets; with rates historically low it isn’t realistic to expect interest rates will decline to the lows seen just a month ago. The question now is, how much of an improvement can be expected? A couple of Fed officials out today; at 10:00 NY Fed Pres. Dudley. At 10:30 Fed Governor Powell talks. Dudley saying the market’s interpretation of the Fed’s intentions are not accurate; another voice trying to temper the recent shock of increased rates. He wasn’t talking about the increase in the 10 yr note, but more about short term rates which as far as we are concerned weren’t the issue. The Fed will keep the FF rate at 0.0% to 0.25% until the unemployment rate falls to 6.5% and that appears to be a long way off. He said as long as the Fed continues to buy the 10 yr note should not be any higher than 2.50%. The markets are “quite out of sync” with the Fed’s policy. Bill Gross of PIMCO fame out this morning saying the 10 yr note should be down to 2.20% (2.49% now). Gross, a man of respect has been wrong recently about the bond and interest rate markets. A month ago Gross saying that PIMCO was divesting of some of its fixed income treasuries, then a couple of weeks ago he turned buyer just before the spike higher; now talking up his confused position that rates should be 30 basis points lower on the 10 yr. We talk a lot about uncertainty that presently dominates the markets; Gross typifies what we mean by uncertainty and volatility that is the present state in the interest rate markets. The bond and mortgage markets, based on all momentum oscillators became oversold and now undergoing a retracement. Rate markets remain bearish in the wider perspective; in the near term there is excessive intraday volatility that implies that uncertainty is dominant in the markets. The last few days the movements through the day have been huge; MBSs opening better then selling back and finally at the end of the day ending close to unchanged from the previous day. Re-pricing frm lenders has become a daily occurrence both up and down. Volatility like this is indicative of uncertainty about where rates should be under the present ever-changing outlooks.

Wednesday, June 26, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com As noted here, we have talked about volatility that would dominate markets the next couple of weeks. today a good example; yesterday MBS prices fell 33 bp on the day, this morning the 30 yr 3.5 FNMA coupon at 8:30 +73 bps. All about data points and markets were surprised (again) when at 8:30 the final read for Q1 GDP reflected the economy was not nearly as strong in Q1 as was widely believed. The overwhelming expectation was Q1 would be +2.4% unchanged from the preliminary report last month; as reported the economy grew at just 1.8%. The reaction sent 10 yr note yield down to 2.52% frm 2.60% yesterday, and spiked MBS prices higher. The weaker growth in Q1 has turned speculation that the Fed would begin tapering in Sept into turmoil. As we noted, it is all data dependent on how and when the Fed would begin to end its market support; Bernanke made that plain when the surprised the markets with his comments that he was ready to begin the end of Fed market support. That part of his remarks was swept under the rug by markets that focused only on his remarks that the Fed would rapidly wind down its support and be completely out by mid-2014. The softer than expected Q1 growth will change some of those outlooks that have driven interest rates higher recently. Most of what we had been hearing from analysts and economists were forecasting a slowdown in Q2 that ends Friday, and that corporate earnings would be down from Q1. If those forecasts hold the take away has to be that the Fed isn’t likely to taper as soon as what had been expected until this morning. It is still a bearish bond and mortgage market however the selling binge will likely lessen somewhat. The weakness in Q1 was due to less consumer spending that accounts for about 70% of GDP growth. Household purchases were revised to a 2.6% advance compared with the 3.4% gain estimated last month. Households cut back on travel, legal services and personal care expenditures and also curbed spending on health care as the two percentage-point increase in the payroll tax caused incomes to drop by the most in more than four years. Disposable income adjusted for inflation fell at an 8.6% annualized rate, the biggest drop since the third quarter of 2008. The immediate reaction from the bullish camp was that the second half of the years would see consumer spending increase---hope is what markets are living on these days. Mortgage applications decreased 3.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 21, 2013, the lowest level since November 2011. The Refinance Index decreased 5.0% from the previous week to the lowest level since November 2011. The seasonally adjusted Purchase Index increased 2.0% from one week earlier, and was 16% higher than the same week one year ago. The refinance share of mortgage activity decreased to 67% of total applications, the lowest level since July 2011, from 69% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The government share of purchase applications dropped to 28%, the lowest level in the history of this series. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.46%, the highest rate since August 2011, from 4.17%, with points decreasing to 0.35 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.52%, the highest rate since March 2012, from 4.23%, with points decreasing to 0.28 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.20%, the highest rate since August 2011, from 3.85%, with points increasing to 0.40 from 0.22 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.55%, the highest rate since November 2011, from 3.30%, with points increasing to 0.43 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 3.06%, the highest rate since October 2011, from 2.81%, with points increasing to 0.39 from 0.35 (including the origination fee) for 80% loans. At 9:30 the DJIA opened +89, NASDAQ +28, S&P +9; 10 yr note at 2.52% -8 bp and 30 yr MBS price +82 bps. At 1:00 this afternoon Treasury auction $35B of 5 yr notes; yesterday’s 2 yr auction was not well bid. In Europe the stock markets rallied that added to it when Q1 US GDP hit on relaxed concerns of an early exit by the Fed. A German consumer confidence gauge for July rose to 6.8 from 6.5 in June, Nuremberg-based research company GfK AG said today. That would be the highest since September 2007. Analysts had expected a reading of 6.5. The German 10 yr bund yield fell seven basis points to 1.74% frm 1.85 two days ago. Euro-area bonds rose, led by those of peripheral nations including Italy and Spain as European Central Bank President Mario Draghi said monetary policy will stay accommodative, boosting the appeal of fixed-income assets. Today’s fall in US interest rates is a welcome move; that said the technicals remain bearish. The 10 yr and MBSs could rally a lot more and still not change the bearish outlook. The 10 yr would have to fall to under 2.35% the 3.5 July FNMA coupon price would have to exceed 102.50---presently 100.64. Today’s weak Q1 GDP report is adding support to the bond and mortgage markets that maybe the Fed will not be moving as quickly as had been thought to unwind its easing. That said, although Q1 was softer, it is to an extent history. The future remains unsure however recent Q2 data has been strong; yesterday May durables were better than expected so too May consumer confidence index and May new home sales. Us this and any rallies to button up deals; interest rates are not likely to fall much frm current levels.

Tuesday, June 25, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A nice price reversal yesterday, after being down 107 bps at 9:30 the 3.5 July FNMA ended down just 14 bps; the 10 yr note unchanged at the end of the day at 2.54%. This morning prior to 8:30 the 10 yr yield had fallen to 2.49% (5:00 am); 8:30 brought May durable goods orders better than forecasts. Orders were expected up 3.3% as reported up 3.5%, ex transportation orders were expected down 0.1% but increased 0.7%. Treasures and MBSs lost most of the early gains. At 9:00 April Case/Shiller 20 city home price index was expected up 10.9% frm this time last year, as reported the prices increased 12.1%; month to month prices increased 1.7% with estimates at 1.5%. The April FHFA housing price index was expected at +1.2% but was up 0.7%. Two reports on home prices diverged somewhat but there was not much reaction to either data. At 9:30 the DJIA opened +71, NASDAQ +30, S&P +9. 10 yr at 9:30 2.54% unch and 3.5 30 yr Fannies +27 bps. Three important data points at 10:00. May new home sales were expected +1.3% increased 2.1% to 476K the best level since June 2008, April new home sales were revised to 466K frm 454K; the median sales price increased 10.3% yr/yr to $263,900.00. The supply of homes increased to 4.1 months frm 4.0% in April. June consumer confidence was expected at 75.0 frm 76.2 in May, the index jumped to 81.4 the best level since Jan 2008. The regional Richmond Fed manufacturing index increased to 8.0 the best since last Nov. The three reports sent interest rates higher and prices lower for mortgage-backed securities. This afternoon Treasury will kick off this week’s auctions with $35B of 2 yr notes; recent 2 yr auctions have not been as strong in bidding as the average of the last 12 2 yr auctions. Tomorrow $35 of 5 yr notes and Thursday $29B of 7 yr notes. Today’s data may confirm that the Fed’s outlook on the economy may be correct after all and it adds more to the belief that the Fed will begin to reduce its monthly buying o mortgages and treasuries by the end of the year. The 10 yr note rate prior to the 10:00 data was abut unchanged at 2.55%, at 10:10 the rate increased to 2.58%; 30 yr MBSs prior to 10:00 +20 bp, at 10:10 -10 bps. No other way to look at the bond market, it is seeing continued selling and technically quite bearish on all our models.

Monday, June 24, 2013

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Not a good start to the week with interest rates continuing to increase; at 9:00 the 3.5 July FNMA coupon -111 basis points from Friday’s 100 basis point fall. The 10 yr note at 2.61% at 9:00 a little better from earlier when the yield hit 2.64%. The rate is now as high as in 2011 before the Fed’s QE took hold. The stock market in the futures markets at 9:00 reflecting a decline of 136 points on the DJIA. There are no economic reports today but this week is heavy on key data points and Treasury auctions totaling $99B. Markets this morning reacting to concerns in China as well as Bernanke’s statement last week. China’s central bank said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion, signaling no relief from a cash squeeze. Chinese equities entering a bear market on concern a cash crunch will hurt the economy. Bonds dropped around the world on mounting speculation the U.S. will begin curbing stimulus, while commodities declined and the dollar strengthened. US and global markets in pure panic these days; markets were completely unprepared for the rapid increase in interest rates and China’s economy falling. Given the present swift fall in US and global equity markets and the speed in which interest rates have increased is clearly evidence that between Bernanke’s comments last week and the credit crunch in China markets were caught by surprise; since last week it has been mostly reaction rather than action predicated on changing fundamentals. The US 10 yr note rate since May 3rd has increased 61% on its yield and 30 yr mortgages up about 45%. A report this morning frm a survey conducted by Bloomberg is a telltale sign that economists are confused and over the top in our view; saying the Fed will cut its purchases of treasuries and MBSs by $20B a month in September. We believe that is too radical and still depends on the data between now and then. While the economy is slowly improving we have yet to see the data that supports such a forecast. The Fed’s withdraw frm the stimulus is unlikely to be that swift and that deep in the time frame of Sept. Nevertheless, it appears based on the way markets are presently reacting that the fear is mounting. At 9:30 the DJIA opened -131, NASDAQ -36, S&P-17. The 10 yr at 2.64% and 30 yr MBS prices down 107 bp and FHA price down 135 bps. All global interest rate markets are climbing right along with US treasuries as the end approaches for central banks’ support of economies around the world. Once that sunk n last week it has been a stampeded out of fixed income investments and stocks momentarily. We have had some questions recently about where the money is going; out of fixed income and moving away from equities these days. Money doesn’t have to be invested all the time; likely a lot of it is sitting in accounts with no risk until more orderly markets can be sustained. How much more increase is in the cards? Not an easy answer now with current market volatility. Economic data is always critical to markets, the next two weeks the data takes on even more importance with the Fed considering ending the QEs. Whether the Fed does move rapidly, or at a less aggressive pace that is now fueling the markets, depends on incoming data and the June employment report in two weeks. This week the data calendar has numerous reports on the housing sector, the strongest segment of the economy. In the meantime we expect volatility will remain high. Use any improvements to get deals consummated.