Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Normally after 4:00 pm each day markets do not move much into the 5:00 close; yesterday additional selling after 4:00 pushed prices down another 16 bp frm levels we recorded on the 4:30 report. On the day yesterday 30 yr FNMA prices plunged 69 bp, GNMAs -72 bp, both 13 bp lower than at 4:00. This morning before the 8:30 Dec employment report 30 yr prices were down another 31 bp frm the close yesterday. The Dec employment report at 8:30 was about in line with estimates. Non-farm jobs increased 155K, non-farm private jobs +168K. The unemployment rate at 7.8% +0.1% frm Nov. The initial reaction in the MBS market improved the price by 20 bp but still -11 bp frm yesterday’s close. (see below for 10:00 levels). Nov non-farm jobs were revised frm +146K to +161K; Nov non-farm private jobs were revised frm +147K to +171K. Average hourly earnings climbed 2.1% from December 2011, to $23.73, the biggest gain in a year. Factory payrolls increased by 25,000, the most since March. Retailers decreased staff by 11,300. Construction companies added 30,000 workers, the most since September 2011; much of the increase due to Sandy. Government payrolls decreased by 13K in December, the third straight month of declines. Service sector jobs were up 109K. The massive selling yesterday was triggered by the FOMC minutes for the Dec 13th meeting. Investors already unwinding the long bond positions established over the past two years, were surprised that the minutes indicated a major discussion within the FOMC focused on when the Fed should back away from its QE easing’s. There were a number of members that were debating the Fed’s exit by the end of 2013. Markets were floored, the overwhelming belief has been the Fed would continue buying MBSs and treasuries well into 2014. FOMC minutes can at times be mis-leading, that may be the case this time; however as we have noted many times here, investors were already seeing the end of the long bond market rally---moving out of safety and back into risk assets (stocks). The rate markets were moving higher in rates, add the FOMC surprise and the flood gates opened. Volatility today in the bond and mortgage markets. At 9:30 the DJIA opened +13, NASDAQ -2, S&P +2. 10 yr note +1/32 at 1.92% after increasing to 1.97% earlier. 30 yr MBS p[rice /2 bp after being down 31 bp earlier. At 10:00 two data points; the Dec ISM services sector index, expected at 54.5 frm 54.7, the index increased to 56.1 the best since Feb 2012. Nov factory orders were expected +0.3%, as reported orders were unchanged. There was no initial reaction to the data. The 10 yr came close to 2.00% this morning but is slightly better now. There should be little doubt now that the long bond and mortgage markets rallies is over. Technically however, the bond market is very oversold on a near term basis and some improvement isn’t out of the question. Any price improvements now should be used to lock in mortgage rates. We believe 2.00% will hold the 10 yr increase for a while but it is not likely the 10 will fall much; best case 1.75% as we see it now. Price volatility will likely continue to be high with big swings on and news.