Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened slightly better this morning with early trade in stock indexes also a little better. The 10 yr note is comfortable sitting close to 2.00% with the bullish outlook for stocks still holding well. Europe’s stock markets traded better today for the first time in four days on rising investor confidence in Germany. An index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 48.2 from 31.5 in January. That’s the highest since April 2010. The better outlook is feeding into US equity markets this morning. The S&P 500 index has been up for the last seven weeks, the longest winning run since Jan 2011 with the narrowest swings on the index since the Depression suggesting investor confidence is increasing. At 9:00 this morning the 10 yr sat at 2.00% unchanged from Friday, 30 yr MBSs +5 bp; stock indexes higher. At 9:30 the DJIA opened +9, NASDAQ +6, S&P +2; 10 yr 2.00% unch, 30 yr MBSs +6 bp. Housing data is dominate this week; at 10:00 a few minutes ago the first of the data, the NAHB housing market index, expected unchanged at 48 fell to 46; the first decline in about a year, Jan revised to 47 frm 48. Jan housing starts and permits and Jan existing home sales also out this week (see calendar). While housing data is important, the FOMC minutes frm the 1/31 meeting will be released tomorrow. The minutes frm the Dec meeting shook markets a little when it was revealed there were discussions in the meeting on how the Fed may unwind its QE. That it was being talked about so soon bothered investors for a few days before Fed officials renewed the pledge to keep buying MBSs and treasuries. Will the Jan meeting have any surprises? Technically the bond market remains bearish but the strength of the bearishness is lessening somewhat. The 14 day relative strength index on the 10 yr is still negative but less so than two weeks ago. The same is true with MBS markets. To actually turn our outlook around the 10 yr has to decline to under 1.95%, and that isn’t that far away. If interest rate do turn around we don’t expect any major moves lower; the 10 possibly down to 1.85% at the best, MBS rates falling about 10 basis points in rate. There isn’t anything in the fundamentals that suggest rates could decline further----except----the coming $1.2 trillion in spending cuts that kick in in two weeks unless Congress and the President can agree on a plan to avoid it. Given the way markets are doing these days investors and traders are acting as if there will be a deal to avoid the sequester.