Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 8:45 this morning the 10 yr note it 2.00%, up another 5 bp frm Friday; at 8:45 the 30 yr FNMA 3.0 coupon was -37 bp frm Friday’s close. The treasury and mortgage markets have been bearish for all of January, the move to higher rates had been volatile. After the 10 yr yield climbed to 1.97% on the Dec employment report on 1/3 the 10 and MBSs declined (rates) but did not change our bearish forecasts. The yield on the 10 yr fell to 1.82% and MBSs did improve, that in turn lessened the bearish talk, but not here. At the close last Thursday the 10 yr yield was 1.85%, it blew up 10 basis points on Friday on more positive news from the EU regarding the debt crisis; in an already negative market it doesn’t take much to increase selling. This morning at 9:00 the 10 yr up another 5 bp. More stronger economic data than was expected at 8:30; Dec durable goods orders much stronger than thought. The consensus estimates were an increase of 1.6%; as reported orders increased 4.60%, ex transportation orders the forecast was for unchanged, orders increased 1.3%. The reaction moved stock index futures higher and took the 10 yr to the psychological 2.00% level. This week’s economic calendar is heavy with key reports. Treasury will auction $99B of notes this week beginning this afternoon with $35B of 2 yr notes. The FOMC meeting begins tomorrow with the very significant policy statement on Wednesday afternoon. Rounding out the week is Friday’s Jan employment report with non-farm jobs early estimate at 180K and private jobs +193K. Last week the House passed a bill suspending the debt ceiling until May 19th; Senate leaders said the Senate would pass the bill this week and the President said he would sign it immediately. In the bill there is a provision that both the House and Senate have to come up with a budget by April 15th or whichever branch doesn’t have a completed budget the members’ pay will be withheld and put into an escrow account until a budget is passed or the end of the 113th Congress whichever occurs first. The DJIA opened at 9:30 up just 12 points, the NASDAQ +2 and the S&P unch. The 10 yr at 1.99% with 30 yr MBS prices down 40 bp frm Friday’s close. At 10:00 the NAR said pending home sales were . Pending sales are contracts signed but not yet closed. Sales contracted 4.3% against estimates of unch to +1.0%. NAR said the decline is due to declining supply as big banks refuse to but their foreclosures on the markets. Nice strategy , if in fact it is one; kind of doubt though that banks are that sophisticated, willing to hold on betting on higher prices. Give the Fed the credit keeping the FF rate at zero. While we remain bearish for the interest rate markets overall; the recent spike is likely a little too much in too little time. The 2.00% level is likely to hold as a near term support. The Fed is still in the markets purchasing $85B of treasuries and MBSs, that should support rates to some extent. The Wednesday policy statement and Friday’s Jan employment report should dictate whether the 10 yr will breach 2.00%. The FOMC policy statement must convince markets the Fed is not about to change its QE policy with supportive comments that the economy isn’t as strong as markets presently believe. The stock market rise has dealt a serious blow to the near term interest rate markets; it is however in very overbought territory at the current levels, a retracement isn’t far off and when it occurs the rate markets will see some improvement but not likely to change the bearish longer term outlook. Mortgage rates and treasury rates are now at the highest levels since last April.