Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Typically after 4:00 pm each day there isn’t much movement in MBSs or treasuries; yesterday that wasn’t the case. After we did the 4:30 PM report mortgage prices continued to decline, MBS prices and treasury prices continued to fall adding 20 basis points to the decline in MBS prices (on the day -44 bp), the 10 yr note yield at 4:00 1.64%, at the close 1.65%. This morning MBS prices are better as are treasury prices on weak stock markets in Europe and early weakness in US index futures. At 8:30 August personal income and spending were reported. Consumers didn’t spend in August; spending barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum. Household purchases rose 0.5%, matching the median estimate of economists, the biggest gain since February, according to data from the Commerce Department. Looks good on the headline but 0.4% of the increase was due to increased prices for food and gasoline; adjusted for the higher prices real spending increased just 0.1%. Incomes rose 0.1% against estimates of 0.2% expected in August, matching the previous month’s gain after the Commerce Department revised down those figures. July income originally reported up 0.3% was revised lower to +0.1%. The saving rate dropped to 3.7%, the lowest since April, from 4.1% in July, the lowest since last April. The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA. Spain will reveal the size of the hole in its banking system with the publication of stress test results later today (12:00 eastern), the credibility of that estimate risks being undermined by a deteriorating economic outlook. The test on 14 banking groups is a precursor to the formation of a so-called bad bank to which troubled lenders will transfer soured real estate to bolster their balance sheets. The test is to assess the damage to banks over the property crash is a condition of Spain’s 100 billion-euro ($129B) banking bailout agreed in July. Spain must present convincing estimates of banks’ capital needs and realistic valuations of toxic real estate assets to spur investment and economic growth. Spanish 10-year bonds yields climbed above 6.0% before the results of stress tests on the country’s banks; 6.0% is considered pivotal on Spain’s 10 yr debt. Over 6.00% and investors get worried, under it seems to increase enthusiasm that Spain can avoid defaults. At 9:30 the DJIA opened -63, NASDAQ -13, S&P -6. 10 yr note at 9:30 1.62% -3 b; 30 yr MBS price +14 bp frm yesterday’s close. At 9:45 the Sept Chicago purchasing mgrs. index was expected at 52.8 frm 53.0 in August; as reported the index the index plunged to 49.7, the lowest reading on the index since Sept 2009. The DJIA dropped 40 points on the news to over -100 on the day. MBS prices got a small boost on the reaction to the very weak report from the Mid-West reading on manufacturing, nothing for the 10 yr note. Index readings under 50 indicate contraction, the report this morning adds belief that manufacturing isn’t going to add much to economic growth. Next week markets will get the national ISM manufacturing index and the national services sector reading. At 9:55 the Sept final U. of Michigan consumer sentiment index was expected at 79.0 frm 79.2; as reported the index hit at 78.3. While 78.3 looks bad compared to the mid-month reading at 79.2, it is substantially better than at the end of August which was 74.3. The index I subject to volatility, that it was up on a month to month basis it is a better report but still weaker than what had been expected. The reaction in the stock market dropped the DJIA t0 -111. There was no improvement in MBSs or treasuries on the report. The bond and mortgage markets continue to consolidate recent improvements; today not much enthusiasm in either market so far after selling yesterday. The longer outlook continues to look good; however we remain somewhat skeptical that the interest rate market don’t have much more declines ahead. We believe rates will fall more but won’t be much more as rates are so low that there is little likelihood they can go a lot lower.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A flood of data at 8:30 this morning has markets scratching heads. Weekly jobless claims were a lot better than thought, -26K to 359K with estimates at 380K. August durable goods were expected down 5.1% and with transportation excluded -0.3%; as released orders fell 13.2% and ex transportation -1.6%. Orders for non-defense capital equipment excluding airplanes rose 1.1% after decreases of 5.2% in July and 2.7% in June. Q2 GDP final revision was expected unchanged from the preliminary last month at +1.7%, as reported Q2 GDP was revised lower to +1.3%. Claims were better but durables and Q2 GDP weaker suggesting Q3 won’t be as good as many were thinking. Prior to the 8:30 data the DJIA futures was up 60; by 9:00 the index added another 10 points to +70. The 10 yr note rate at 9:00 at 1.64% +3 bp with 30 yr MBSs -9 bp. Spain’s bond market improved a little today with the 10 yr yield declining 3 bp after a jump the last couple of days as protests against austerity roiled markets. Italian securities rose as borrowing costs fell at a 6.65 billion-euro ($8.6 billion) auction of five- and 10-year debt. German 10-year bund yields were little changed after falling to the lowest level in three weeks. Spain is set to announce its budget defying anti-austerity protesters and dissent from regional leaders as he struggles to convince investors he can contain the crisis and avoid asking for a full bailout. The bond market is higher in rates this morning for the first time in 8 sessions, the longest sustained rally since Dec 2008. Bonds have been supported as investors returned to some safety moves with Greek and Spanish citizens protested and clashed with police over austerity cuts that are driving unemployment to 23% in Spain. Spain and Italy are trying to avoid asking the ECB for a bailout, but the headwinds are severe. Money is leaving Spanish banks in buckets as investors continue to exit, adding to the potential that a bailout frm the ECB is unavoidable. At 9:30 the DJIA opened +46, NASDAQ +11, S&P +5. The 10 yr treasury note at 1.65% +4 bp. 30 yr MBS price -29 bp. MBS prices have increased for 8 days an due for a pullback. At 10:00 August pending home sales (contracts signed but not yet closed) by the NAR. Pending sales were expected up 1.0%; as reported sales declined 2.3% yr/yr though up 10.7%. The NAR saying the decline is a result of small inventories especially in lower cost homes. The initial reaction to the report improved the mortgage market slightly and drove the stock indexes off their early strong levels. At 1:00 this afternoon Treasury will finish the week’s auctions with $29B of 7 yr notes; we expect the auction to see decent demand. The decline in mortgage prices this morning doesn’t signify any change in the overall direction in prices. It was very likely to occur as we mentioned on Tuesday, the bond and mortgage markets were due for a pullback. All that was needed was a reason, this morning Europe looks more relaxed for the day and US stock indexes were also due for a rebound. Even the soft durable goods data this morning didn’t drop the stock indexes but like the bond market we expect the indexes to continue to decline with a real potential of a major decline in the next month. Interest rates should continue to fall with our target for the yr note at 1.56% (1.63% now).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US and German interest rates continued to decline today and stock markets lower in Europe and early trading this morning had the stock index futures weak after a strong sell-off yesterday. There are various reasons the US stock market saw selling yesterday; anticipated earnings in Q3 are expected to be lower, Europe’s relentless inability to deal with its debt crisis and the realization that the Fed’s QE3 announced two weeks ago won’t add many new jobs---if any. That the Fed continues to buy treasuries and MBSs is expected to add jobs has been the most mis-understood belief in years is finally finding believers as the evidence is irrefutable. Yesterday Philadelphia Fed Pres. Plosser and Richmond Fed Pres. Lacker waded in with comments that easing from the Fed isn’t going to accomplish what Bernanke is doing. Lower interest rates have little impact on economic improvement especially when the financial cliff of tax increases and an end to the SS payroll tax cuts loom heavily and trump anything the Fed can do. In Europe yesterday, riots and protests in Spain increased moves into safe German debt and US agency debt. With the Fed’s recent decision to buy $40B a month of MBSs with no announced cap on the amount has made the MBS markets a safe place with higher returns than US treasury rates; MBSs appear to be the place now for investors to find safety. In Spain, the prime minister has struggled to persuade people to accept the deepest austerity measures on record. Unions and protest groups are demanding a referendum on cuts announced by the government. Spain is still dragging its feet in asking the ECB for help, trying to carve out a better deal. Spain’s interest rate climbed above 6.00%, approaching the levels seen before European Central Bank President Mario Draghi offered to buy struggling nations’ debt. Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.” Don’t forget Greece in this never-ending debt crisis. Schools, hospitals, ferries and government services shut down in the first walkout since February. Shops will close from 3 p.m. today to let staff take part in demonstrations. Police fired tear gas near the Greek Parliament after protesters threw fire-bombs as thousands of people joined a strike opposing wage cuts and austerity that Prime Minister Samaras said are vital to keep the euro. Demonstrators streamed into the central square in Athens, opposite the Parliament House, shouting slogans such as “struggle, clash, overturn: history gets written by those who disobey.” The renewed tensions in the EU that had been softened recently on comments from ECB’s Draghi that the bank is ready to buy sovereign debt of Spain Italy and other debt strapped counties, and approval of the plan by Germany’s parliament to do so has ended for the time being. The region is back again as a dominate factor for global equity and bond markets. Europe’s stock markets declining, the US stock market teetering on the possibility of a major sell-off and another run to historic low interest rates; all being driven by the debt crisis in the EU. After weak trading early in US stock indexes at 9:30 the DJIA opened better; the DJIA up 15, NASDAQ -4 and the S&P-1. The 10 yr note at 9:30 at 1.65% -2 bp with 30 yr MBS price +12 bp. The weekly MBA mortgage applications were better last week as mortgage rates fell. The purchase index rose 1.0% in the September 21 week with the refinance index up 3.0%. Mortgage bankers are busier with refinancing than they are for purchases with refinancing making up 81.2% of total applications which is the highest percentage since early August. Down nine basis points in the week, the average 30-year fixed mortgage rate for conforming loans ($417,500 or under) is 3.63% which is a new low for the Mortgage Bankers' survey. August new home sales at 10:00 were expected to have increased 2.1% to 380K units; July sales were up 3.6% at a 372K annualized rate. As reported sales were generally unchanged at 373K units, July at 372K, -0.3%. At 1:00 Treasury will auction $35B of 5 yr notes, yesterday’s 2 yr note auction was OK but not especially strong. Today’s 5 yr should see better demand. Technically the 10 yr note has finally cracked its key averages; now the yield is under the 200, 20 and 40 day averages with the relative strength index moving into bullish territory. The MBS markets, if viewed on their own are extremely over-bought the 10 yr isn’t and negates the over-bought technicals that characterize MBS trading. As long as the 10 yr isn’t running over-bought readings we can ignore the current MBS technical reads; the 10 is still the driver for directional moves in the MBS markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 9:00 this morning the 10 yr note yield fell to 1.69% -2 bp and at its 40 day average. Mortgage prices opened unchanged from yesterday; the stock indexes were better pointing to a stronger opening at 9:30. In Europe’s continuing soap opera; Greece is facing a financing gap that won’t be solved by budget measures being discussed, International Monetary Fund Managing Director Christine Lagarde said yesterday. Nobel Prize-winning economist Joseph Stiglitz said euro members will have to share debts and speed the implementation of a banking union to prevent a situation in which “the whole system falls apart.” In Germany Merkel can’t move without problems from her own political party, providing more money from Germany to feed Greece. Spain continues to hold off asking for the ECB to buy its debt, the country has been able to sell its debt in the markets at decent rates so leaders are reluctant to do what in the end has to be done. In the meantime ECB Pres. Draghi’s plan to buy the debt of cash- strapped nations boosted Spanish bond values and cheapened German debt. Demand for German debt, perceived to be among the safest securities, is being sustained as Spain weighs a sovereign bailout to supplement a 100-billion euro ($129B) bank rescue package and as Europe’s economy falls toward recession. The German 10 yr bund is at 1.52% compared with the US 10 yr note at 1.70% this morning; in late July before ECB’s Draghi said the bank would do whatever it takes to save the euro the 10 yr German 10 yr yielded 1.127%, the US 10 yr was at 1.41%. Both yields have increased since then on optimism the EU will dodge the bullet. Although interest rates did increase on the Draghi announcement the rate markets have improved from the high level seen two weeks ago when the US 10 yr hit 1.86%. The July Case/Shiller home price index at 9:00 was better than expected; the 20 city price index increased 1.2% frm July 2011, the biggest 12 month increase since August 2010. Shiller saying on CNBC that “housing is back”. He said inventories still low but Shiller is saying the data suggest prices may be increasing. Home prices adjusted for seasonal variations increased 0.4% in July from the prior month. Unadjusted prices climbed 1.6% from the previous month as all 20 cities showed gains for a third consecutive month. At 9:30 the DJIA opened +30, NASDAQ +10, S&P +4. The 10 yr note after dropping to 1.69% earlier was back to 1.71% and unable to crack its 40 day average at 1.69%; 30 yr mortgage price up 7 bp frm yesterday’s close. At 10:00 the Sept consumer confidence index was expected at 63.2 frm 60.6 in August, earlier this week the estimate was for 63.0 but analysts revised their forecasts a little higher. As reported the confidence index jumped to 70.3 frm 61.3 in August, the best level since last February. Prior to the release the DJIA had fallen back to +15, the response to the strong confidence jumped the index back to +51 and took the 10 yr note up to 1.73% +2 bp on the day. A little heads up; while the longer outlook for mortgage rates remains quite positive, the current condition I the MBS market is becoming overbought and may be ready for a correction. If there is a pullback it won’t likely change the overall optimism and would present buying opportunities for investors. The 10 yr note isn’t as overbought as MBSs but it isn’t showing much strong support either. With the Fed printing money as fast as it can it isn’t likely interest rates will increase much IF selling were to occur.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Getting off the a good start in the bond and mortgage markets this morning with US and Europe stock markets weaker. 9:00 had the 10 yr note at 1.72% -3 bp and testing its key 20 day average; 30 yr MBS prices improving again +15 bp and making another new record high on prices. The Fed’s decision to buy $40B a month of MBSs with no limit has sparked a run to MBSs by investors looking for better returns than can be achieved in treasury markets. There are no economic reports today but the rest of the week has a number of critical reports. Treasury will auction $99B of notes beginning tomorrow with $35B of 2 yr notes, Wed $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent Treasury auctions have seen decent bidding but not as strong as a few months ago when it looked like the EU nations were about to split apart. The ECB stepped up with its plan to by sovereign debt from struggling economies, that took away a lot of the need for safety in US and German bunds. Much of the weakness this morning in Europe’s stock markets and key US indexes is due to frustration within the EU with Spain’s dragging its feet with deciding whether it will ask for assistance from the ECB. The country needs a full scale rescue but won’t ask for it, looking for better terms? Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue. The Spanish prime minister has displayed reluctance to seek more help after Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister said last week Spain will consider a bailout if conditions are acceptable. As long as any country in the EU balks, or doesn’t in in step with Germany there will be a need for safety; today a good example but nothing as severe as six months ago when it looked like the whole region would come undone. U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, government figures show. German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Ifo’s measure of executives’ expectations declined to 93.2, the lowest since May 2009, from 94.2. A gauge of the current situation fell to 110.3 from 111.1. The debt issues in Spain, Italy and a couple of other of the 17 member EU are in recession talking Germany down with them, not to mention the global economies including the US. At 9:30 the DJIA opened -50, NASDAQ -27, S&P -8; 10 yr note at 1.73% -2 bp while 30 yr FNMAs were up 9 bp frm Friday’s close. At 10:00 the 10 yr note is testing its 20 day average at 1.72%; if the 10 can break the 20 and 40 day average (1.69%) we would expect the note to decline to at least 1.60%. This week’s economic data will be important to the technical outlook as well as the US stock indexes. A lot of chatter out there that the stock market is overdue for what some see as a major correction after the improvements over the past few weeks. In some sense the more talk of a correction coming, the less likelihood it will happen; when the majority talk more bullish is when we worry most. The Oct 30 yr FNMA coupon’s relative strength is in overbought levels suggesting some consolidation or pullback; wait for it though, the MBS market is strong.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: The bond and mortgage markets opened generally unchanged this morning with no driving news and no US data points today. MBSs had another good day yesterday but treasuries were flat; the spread between 30 yr mortgage rates and the 10 yr note is narrowing since the Fed announced its plan to purchase $40B a month of mortgage-backed securities. US treasury market this morning is slightly weaker, the 10 yr note up 1 bp to 1.78%. German 10 yr bund also weaker in price on reports that said euro-region policy makers will unveil a financial bailout program for Spain as early as next week. The German 10-year yield climbed one basis point, or 0.01 percentage point, to 1.58%. Spanish Economy Minister is in talks with European Commission authorities to facilitate a new rescue program that will be presented on Sept. 27, the Financial Times reported, citing unidentified officials involved in the discussions. If you blinked you missed Congress in session; the politicos are about to head home again after two heavy lifting weeks of constant arguing and not accomplishing much. That really should not be a surprise however, this Congress is one of the worst in history and is an embarrassment to citizens. Just 13% of Americans approve of the job Congress is doing, according to a Gallup Poll released last Friday. That’s the lowest congressional approval rating Gallup has recorded so late in an election year. The only notable piece of legislation Congress plans to send to the President from its two-week September session is a stopgap funding measure to keep the government operating from the Oct. 1 start of the fiscal year through March 27, 2013. Lawmakers plan to finish their work within the next few days. At 9:30 the DJIA opened +41, NASDAQ +18, S&P +6; 10 yr note +2 bp to 1.79%. Mortgage prices generally unchanged from yesterday’s close. The day should be quiet with no news of consequence, not much to report. On CNBC this morning most talk is about Apple’s new phone, not much to fill the airwaves this morning. . Technically the 10 yr note is still slightly bearish, while the MBS markets hold a bullish bias on the Fed’s decision to buy MBSs.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. US treasuries early this morning were better, the 10 yr note yield down 4 bp to 1.74%. The decline fueled by disappointing Spanish 3 yr note auction pushing investors to seek safety in German bunds and US treasuries. German 10-year government bonds advanced for a fourth day, the longest run of gains this month. The German 10 yr declined 3 bp today to 1.59%, our 10 yr down 4 bp to 1.74% at 9:00 am. The yield on Spain’s 10-year bond increased nine basis points to 5.78%. The rate on similar-maturity Italian securities climbed 10 basis points to 5.02%. Weekly jobless claims at 8:30 were expected to have declined 9 to 10K, they were down 3K to 382K; last week’s claims were revised from 382K to 385K. the 4 wk average a smoother way to look at claims was up 2K to 375,750. Claims have been in a narrow range recently, not increasing but not declining, suggesting employers are not firing nor are they hiring. Until Congress and the Administration deal with expiration of the tax cuts and SS payroll cuts businesses are likely to sit tight; hard to plan when these issues hang over the economy. A Labor Department spokesman said there was nothing unusual in the state data last week. States and territories that reported an increase in claims as a result of Tropical Storm Isaac two weeks ago, including Louisiana and Puerto Rico, didn’t indicate the weather had any influence last week, the spokesman said as the data was released to the press. Dallas Fed President Fisher, one that is opposed to the Fed’s easing moves, speaking out yesterday. He said the central bank’s third round of bond purchases will probably fail to create jobs while risking higher inflation. “I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said yesterday on Bloomberg Radio’s “The Hays Advantage”. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.” Congress’s inaction on fiscal policy and excessive government regulation are holding back businesses from spending on hiring and investment, Fisher said in a Bloomberg Television interview. The Fed’s stimulus efforts, or so-called quantitative easing, won’t work because the central bank can’t address those obstacles to growth, he said. “I question the efficacy of these large-scale asset purchases,” Fisher said. “What we are doing is not having the impact on employment.” We comp[lately agree with Fisher that while the $40B a month purchases of MBSs is nice for mortgage markets but won’t create jobs over the economy. Euro-area services and manufacturing output fell to a 39-month low in September as European leaders struggled to reverse the single-currency bloc’s slide into recession. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area dropped to 45.9 from 46.3 in August, London-based Markit Economics said today in an initial estimate. A reading below 50 indicates contraction. Crude oil is trading at six week lows this morning after U.S. stockpiles climbed the most since March; Chinese manufacturing shrank and Japanese exports fell, signaling fuel demand may be slowing among the world’s biggest crude users. At 9:30 the DJIA opened -52, NASDAQ -17, S&P -7. The 10 yr note 1.73% -5 bp; 30 yr MBSs +20 bp. At 10:00 the Sept Philly Fed business index was expected at -4.0 frm -7.1 in August. As released the index was better at -1.9. August leading economic indicators was down 0.1% as expected. Interest rate lower today on Spain’s weak auction. The 10 yr has been able to hold at its 200 day average, testing it five times over the last month on any selling pressure. MBS markets continue to hold bullish trends on the Fed easing announced a week ago. This morning the 10 is testing its 20 day average at 1.72%, a break below it will add additional bullish bias. Today’s move is also fueled by weak stock markets in Europe and the US; although the DJIA did improve on the Philly Fed release at 10:00.