Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A strong relief rally this morning on the half-baked deal to avoid tax increases and increase taxes on dividends and capital gains. The deal took until the last minute to get done but left all the serious issues to another day; what Congress and this Administration does best----push it down the road. Early this morning the DJIA up over 200 points in the futures markets; the 10 yr note yield at 8:45 at 1.85%, up 9 bp frm Monday’s close and on its last technical support level. The House of Representatives’ 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600B in tax increases and spending cuts that would have started taking effect yesterday. President Barack Obama said he will sign into law the bill undoing tax increases for more than 99% of households as Republicans vowed to fight him for spending cuts in exchange for raising the debt ceiling. The Cliff was avoided. Next up will be serious debate over the debt ceiling that is now $16.4 trillion. Treasury is theoretically out of money now but operating on “emergency” funding until mid-February. The president is already on record saying he won’t negotiate on the debt ceiling that if not increased will automatically set up huge spending cuts. It is going to be another two months of angst for markets. Mortgage rates up this morning, not as much though as in the treasury market. At 9:00 MBS 30 yr prices down 35 bp while the 10 yr note is down 73 bp with its yield up 9 bp after increasing 5 bp on Monday. At 9:30 the DJIA opened +93, NASDAQ +74, S&P +17; the 10 yr note yield at 1.84% and 30 yr MBSs -25, 15 yr mtg price +2 bp. Two data points at 10:00 this morning; the Dec ISM manufacturing index, expected at 50.5 frm 49.5, was fractionally better at 50.7. Nov construction spending expected up 0.6%, declined 0.3%. Although most all focus this morning in the markets is on the passage of the Cliff; this is employment week with Dec employment data on Friday. Early estimates for non-farm jobs in Dec +150K, non-farm private jobs +157K with the unemployment rate at 7.8% +0.1%. ADP will be out with its estimate on private jobs out tomorrow is for an increase of 150K. Technically, the 10 yr note must hold at 1.85%, the level that has held four previous times when rates increased. An increase over 1.85% will push rates even higher, to 1.95%. The MBS markets are worse today but are doing better than treasuries as investors are getting out of treasuries and into higher rates of returns. Keep in mind the Fed is still there buying $85B a month of treasuries and MBSs. Expect increased volatility levels in the coming weeks with more serious debates coming over the debtceiling and sequesters on spending cuts due on the 1st of March, like the fiscal Cliff debates, we won’t expect any agreements until the last minute. What we have endured until now is only a preliminary to the main events.