Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com In what we have been describing as a bear market in bond and mortgage markets, today there is strong selling taking the 10 yr note yield to 1.92% at one point about 8:45 this morning and MBS prices down as much as 40 basis points from yesterday’s 25 bp sell-off. As of 9:00 this morning 20 yr 3.0 FNMA’s were down 55 bp frm the close on Wednesday. The early trade in the stock market had the DJIA up 24 points at 9:00. The 10 yr note has decidedly broken from its recent trading range, and technically broke out of a coiling pattern that had developed over the past two weeks; making lower highs on selling and higher lows on buying (yield). This morning the break-out is likely to add additional pressure for bonds and mortgages. More better news from the EU today is adding to the exodus from US treasuries. The ECB said banks in the region will repay more of its emergency 3 yr loans than most were not expecting. Another indication that the EU debt crisis is declining. One of key reasons for investors to stay with US treasuries over the past three years has been fears of debt defaults by some of the countries in the EU that would have derailed the EU. Over the course of the past few months progress made on default fears has lessened investor fears. Some 278 financial institutions will return 137.2B euros ($184.4B) on Jan. 30, the first opportunity for early repayment of the initial three-year loan. The dismal scientists had estimated paybacks would total 84B euros; a huge miss that is generating a lot of bond selling this morning. Those same economists that missed estimates by a wide margin continue to caution not to make much of it; hard to admit such a huge miss. The ECB is taking some of the punch bowl away from its pledge to buy bonds from EU countries, although the bank continues to stand by its pledge. German investor confidence has also been improving, and again another miss by economists that were forecasting less optimism in Europe’s largest economy. Mario Draghi the President of the ECB saying, “we foresee a gradual recovery in the second part of the year,”…. “Governments ought to be given credit for what they did,” he said at the World Economic Forum in Davos,…. “For the first time in many years, the process of restarting European integration got momentum.” At 9:30 the DJIA opened +28, NASDAQ +9, S&P +4. The 10 yr 1.92% +7 bp; 30 yr MBSs -37 bp. At 10:00 Dec new home sales were thought to be up 2.8%; as reported sales fell 7.3% to 369K units (annualized) but November sales were revised higher, from 377K units to 398K units. The November revision higher took sales to their highest level in two years. For all of 2012 sales were up 19.9% the best increase since 1983. The median sales price continues to increase; $248,900.00 up 13.5% on the year. The current supply is just 4.9 months, about the same as supply for Dec existing home sales. No direct reaction to the report, but the bond and mortgage markets were already seeing strong selling. Next Tuesday and Wednesday the FOMC will meet; after the minutes from the Dec meeting suggested more discussion within the FOMC about an exit strategy frm the QEs, and now more encouraging signs from the EU, the meeting has even more importance. Likely the Fed will keep buying $85B a month of MBSs and treasuries that will support US interest rates. The unanswered question now is how high with the 10 yr note increase before the Fed’s QE actually will influence markets? As we have noted over the last month, technically the bond and mortgage markets were throwing off many bearish signals; regardless of the what has been driving the bond market, it has been bearish since 12/31/12. Don’t fight the tape; price action always trumps talk and opinions, recently there has been more selling than buying as evidenced by the patterns each day from investors and traders.