Mortgage Market Snapshot

Forwarded exclusively by:	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.
Friday, October 29, 2010
8:30 Q3 GDP was right on at +2.0% besting Q2 at +1.7%. Although a better Q3 it is still very weak; the Q3 employment cost index up 0.4%, forecasts +0.5%. Final sales in Q3 up 0.6% compared to +0.9% in Q2. The reaction to the data sent treasuries rallying and mortgage prices increasing. Even with the improvement in Q3 there is increasing questioning that the gains are insufficient to cut into the unemployment rate, and adds to the idea that the Fed needs to ease and inflation fears are overdone----at least that is the momentary thought, it swings almost daily. At 9:00 the 10 yr note +11/32 at 2.62% -4 BP and mortgage prices up 8/32 (.25 bp) frm yesterday's close. The DJIA traded weaker prior to the 9:30 open; at 9:30 the DJIA opened -20, 10 yr note +9/32 at 2.64% -2 bp and mortgage prices mixed with 30 yr +7/32 (.22 bp) and FHAs +4/32 (.12 bp). More data; at 9:45 the Oct Chicago purchasing mgrs index, expected at 57.6, it was better at 60.6 frm 60.4 in Sept. The components were also better than Sept; new orders index at 65.0 frm 61.4, employment index at 54.6 frm 53.4 and prices pd at 68.9 frm 55.0 in Sept, mostly up on energy costs. The was not much reaction in the bond markets to the better report but the stock indexes did manage a little bounce. The final data point this week, the U. of Michigan consumer sentiment index was expected at 68.0 frm 67.9, was weaker at 67.7 the lowest sentiment reading since Nov 2009. The 12 month outlook fell to 67 frm 70 two weeks ago; the 12 month inflation outlook at 2.7%. No real immediate reaction to the report. Moving toward next Wednesday's FOMC meeting and the Fed's announcement of the QE that has been the focal point for traders and investors since the 9/21 meeting when the Fed said it was "prepared" to ease further if necessary. Since that statement it sent rate markets first rallying, then retreating back to levels prior to the comment. There is no doubt in the markets that the Fed will ease by buying treasuries; the concerns are on how much and how quickly the Fed will buy and what the impact may be on the economic recovery and the outlook for inflation. The Fed wants inflation to increase a little to crush out deflation potential, the long end of the yield curve (5s, 10s and 30s) however worry over inflation increasing. And then the dollar; along with attempting to stimulate recovery, the Fed and Treasury want the dollar to decline (although Treasury would never admit it); in the global context it is somewhat of a currency war with central banks trying to weaken their currency to increase exports. Printing money as the Fed will do with the easing has the effect of weakening the dollar as long as it a substantial easing move. The initial reaction to easing sent rates lower, then on concerns of inflation that easing might generate rates swung back. The take away----there is no certainty about the amount of easing, the impact of it on the dollar, on the impact for the economic recovery, or how it will . Gallons of ink and a lot of talk about the easing, yet in the end here we sit right where interest rates were prior to the 9/21 FOMC statement. Some say $500B, some say $1T, some believe $110B a month for six months, a few still hold out for a shock and awe amount; no one wants to bet much on any of the forecasts.
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Mortgage Market Snapshot

Forwarded exclusively by:	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.
Thursday, October 28, 2010
After 5 days of selling in the rate markets, this morning a little improvement. Prior to 8:30 the 10 yr note held a 12/32 price gain and mortgages up 7/32 (.22 bp); at 8:30 weekly jobless claims were better halting any additional improvement. Claims for last week were expected to be up 3K to 455K, as reported claims fell 21K to 434K, the lowest in weeks. Continuing claims fell to 4.35. mil frm 4.80 mil last week. Treasuries and mortgages dropped back a touch but still managing to hold a little improvement. At 9:00 the 10 yr note +7/32 at 2.71% -2 bp and mortgages +5/32 (.15 bp) frm yesterday's close. Not much, but any gain is welcome after the bond market flipped on the QE outlook. When the FOMC announced the Fed was prepared to ease further at the conclusion of the 9/21 meeting it set off a huge run lower in rates on the belief the Fed was intent on driving long term rates lower. The 10 yr note yield fell 45 basis points and mortgage rates declined 24 basis points. The dollar declined and the equity markets rallied. Recently though the outlook for a strong easing move from the Fed has faded and the rate markets are now back to levels prior to the FOMC meeting. The read on the easing initially was that the Fed would buy significant amounts of treasuries to drive long term rates lower, bust the dollar and ignite more interest in the housing sector. Over the last 10 days the sentiment has changed; presently the consensus is that the Fed will launch an easing move but that it will be at a slower pace than the initial expectations. The stock market opened better this morning on the weak dollar; after a couple of days of improvement the dollar is under pressure again today. China’s yuan fell to its weakest level this month after the central bank set a lower reference rate for a third day, spurring speculation the government is limiting appreciation. The People’s Bank of China set the reference rate 0.11% weaker at 6.6986 against the greenback. The yuan has weakened 0.5% since policy makers from the Group of 20 nations said on Oct. 23 they would refrain from “competitive devaluation” before the Nov. 11-12 leaders’ summit. The Dollar Index, which tracks the greenback against currencies of six major U.S. trading partners, declined 0.6% to 77.698. The gauge has fluctuated between gains and losses this month as speculation additional credit-easing measures from the Fed will weaken the currency were offset by bets the central bank will buy a smaller amount of bonds than some analysts predicted. At 1:00 Treasury will auction $29B of 7 yr notes; yesterday's 5 yr note was met with OK demand but not nearly as strong as past auctions. The 7 yr today will be more difficult to get strong demand. The Fed is about to turn on the printing press to print more dollars. That is what QE is all about. The Fed however talks about helping revive the economy with the easing while the real emphasis is to drive down the dollar to improve exports and improve the economy. Lower interest rates, while helping, is only a method to beat down the dollar. The problem is however, that every country is trying to do the same. With the Fed about to "ease", the effect will be that other central banks will be forced to do the same. The recent jump back in rates has likely run its course but we are left with the question, how much lower will rates fall when the Fed actually announces its easing policy, and will the Fed lay out the entire plan being formulated? Flying blind, throwing it against the wall to seer what sticks. Unemployment isn't going to fall much, consumers still deleveraging and the housing sector shows no real signs of stabilizing. Lower interest rates are just a by-product of the Fed printing more money to bring the dollar down.
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Mortgage Market Snapshot

Forwarded exclusively by:	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.
Wednesday, October 27, 2010
Interest rates continue to increase, the 6th day in succession that the rate markets have experienced selling. The bellwether 10 yr note is now back to the level it was trading when the FOMC statement called for another QE move. The mortgage market and treasury market rallied sending rates down as much as 40 basis points on the 10 yr and 20 basis points on mortgages. Now there is apparently a concern in the markets that whatever the Fed may do next Tuesday won't be enough shock-and-awe to drive rates lower. The Wall Street Journal reported this morning that the Fed is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, in contrast to the central bank's purchases of nearly $1.5 trillion worth of bonds during the financial crisis. The report said officials want to avoid the "shock-and-awe" approach used during the crisis in favor of an approach that allows them to adjust policy over time as the recovery unfolds. As the calendar ticks off closer to the easing move, designed to push long term rate lower, there is increasing skepticism that the amount of the easing move may not be what the original beliefs thought when the FOMC made that statement. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said Monday that more expansive monetary policy was a "bargain with the devil." While there is a serious debate within the Fed about another easing move, it is still likely to occur but as we noted in past comments, traders are withdrawing their bets that the amount of the Treasury buying will be less than originally believed. While speculators are covering their bullish bets that rates will decline substantially, the Fed will ease and at worse will keep rates from increasing. The issue now is by how much and on what time frame? How the bond market will trade on the easing next Wednesday is uncertain, but we believe the market is coming close to the end of its bull market that has taken interest rates to historic lows. At 8:30 Sept durable goods orders were expected to be up 1.7%, as reported orders were up 3.3%, but when the volatile transportation orders are removed orders declined 0.8%; the estimate was for an increase of 0.1%. A slight improvement in the rate markets but not much. Stock indexes dipped with the DJIA futures down 55 points ahead of the 9:30 open. Earlier this morning the weekly MBA mortgage applications; the Market Composite Index, a measure of mortgage loan application volume, increased 3.2%. The Refinance Index increased 3.0% from the previous week. The Purchase Index increased 3.9% from one week earlier. The unadjusted Purchase Index increased 3.5 percent compared with the previous week and was 30.3% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 1.4%, while this average is up 1.9% for the Refinance Index. The refinance share of mortgage activity decreased to 82.3% of total applications from 82.4% the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.25% from 4.34%, with points increasing to 1.0 from 0.81 (including the origination fee) for 80% loans. The 30-year contract rate matches the rate from the week ending October 1, 2010, which was the second lowest ever observed in this survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.67% from 3.74%, with points decreasing to 0.96 from 1.00 (including the origination fee) for 80% loans. The 15-year contract rate is the second lowest observed in this survey, with the lowest being 3.62% from two weeks ago. At 10:00 Sept new home sales, expected up 2.5%, jumped 6.6% to 307K annualized units. Prices fell 3.3% with an 8 month supply from 8.6 months last month. There are 204K units on the market, the lowest since July 1968. Treasuries and mortgages saw some selling on the report. Not much improvement in the equity markets. Later this afternoon (1:00 pm) Treasury will auction $35B of 5 yr notes; yesterday's 3 yr note auction was well bid but as borrowing moves out the curve the demand normally slides a little. Until the auctions two weeks ago the demand for US Treasury debt had held very strong, the auctions two weeks ago were a little weaker and now have dealers a little more concerned. That said, the demand will be strong even if not at the recent levels.
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Mortgage Market Update

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.

Tuesday, October 26, 2010

Treasuries and mortgage markets opened soft this morning on better economic data from England. The U.K. economy grew more than forecast in the third quarter and Standard & Poor’s said the nation no longer faces the risk of downgrade as pressure eases on the Bank of England to add more stimulus. The U.K. gross domestic product rose 0.8% in the quarter through September after climbing 1.2% in the previous three months, the Office for National Statistics said in a separate report in London. The U.K. also has the top credit grades at Moody’s Investors Service and Fitch Ratings, both with a stable outlook. S&P had previously said that Britain faced a one-in-three chance of a downgrade because of its ballooning debt. The Brits are biting the bullet with huge spending cuts while here in the US we can't stop spending as the government grows like a dandelion in July.

At 9:00 the Case/Shiller home price index, expected up 0.2% took another dip, down 0.2%. The decline in prices may be the precursor for another run on home prices and isn't what anyone wanted to see. There was little reaction to the report as both treasuries and mortgages were already trading lower. The stock indexes were weaker and lost a few more points on the data.

At 9:30 the DJIA opened -56, the 10 yr note -12/32 at 2.61% above its recent high yield; mortgage prices at 9:30 -9/32 (.28 bp) frm yesterday's close on 30s, 15s -5/32 (.15 bp).

At 10:00 the Conference Board reported Oct consumer confidence up 50.2 frm a slightly revised 48.6 (frm 48.5).

Also at 10:00 the FHFA reported its home price index for Aug; up 0.4%, better than expected.

The Richmond Fed manufacturing index also came in better, at +5 frm -2.0 in Sept.

The three data points at 10:00, all better than forecasts but there has been no immediate reaction to the data in the bond market. The stock indexes however did improve but still lower on the day at 10:05.

Now the auctions for the week; at 1:00 Treasury will auction $35B of 2 yr notes. The demand should be good, banks like the 2 yr. Two weeks ago Treasury auctioned 3 yr, 10 yr and 30 yr notes and bonds, the demand was weak so this go-round bidders are hedging their bets by selling treasuries and also pushing mortgage prices lower.

Markets still consumed with next week's QE from the Fed; we will get the easing but the details remain cloudy with estimates all over. If there is a consensus it is that the Fed will announce it will purchase $500B of longer dated treasuries over a six month timeframe. The idea, to push rates lower and generate more consumer spending. Will it really? Hard to handicap how lower rates will motivate consumers, but we don't expect as much benefit as many do. Keeping interest rates low won't be easy and likely won't last long if consumer spending and the housing sector show any life as a result of the easing move.

Mortgage Market Update

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.

Monday, October 25, 2010



Treasuries and mortgages opened firm this morning ahead of the Sept existing home sales at 10:00. The dollar is being hit again this morning, adding support to the stock indexes and the bond market; the finance ministers finished their meeting in South Korea with a statement that MAYBE the G-20 will think about adopting a plan to make currencies more attuned to markets and the economy rather than moving closer to a currency war that has been brewing for months; the dollar this morning is pushing into lows against the yen not seen in years. European stocks climbed after Group of 20 finance chiefs heightened speculation the Federal Reserve will announce further stimulus measures next week.

Ben Bernanke spoke early this morning (8:30) saying the central bank and other regulators are “intensively” examining financial firms’ home-foreclosure practices and expect preliminary findings next month. “We have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions,” ...... “We are looking intensively at the firms’ policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures.” He didn’t comment on the outlook for the economy or monetary policy, eight days before the Fed meets to decide on what economists and investors expect will be a plan to boost growth by restarting large-scale securities purchases. After discussing foreclosures, he devoted much of his remarks to the Fed’s housing-market efforts, such as studies, conferences and events serving troubled borrowers.

The DJIA opened +50; 10 yr at 9:30 +14/32 2.51% -6 bp and mortgage prices +7/32 (.22 bp) on 30s and +5/32 (.15 bp) on 15s.

At 10:00, the only data today, Sept existing home sales, expected up 2.9%, increased 10.0% to 4.53 mil annualized. A big jump but not what the headlines would suggest; most closings were part of the tax credit, 35% of the sales were distressed sales and now with the foreclosure issues sales in Oct won't do so well. The median home price $171,700.00 with a 10.7 month supply on the markets, inventory levels did decline 1.9% but still leaves a huge overhang, especially when the foreclosure moratorium ends. There was no reaction to the better report in the bond or mortgage markets on the report.

This Week's Economic calendar:
Tuesday;
9:00 am Case/Shiller 20 city home price index (+2.0%, August +3.18%)
10:00 Oct consumer confidence index (49.0 frm 48.5)
1:00 pm $35B 2 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications
8:30 am Sept durable goods orders (+1.7%; ex transportation orders +0.1%)
10:00 am Sept new home sales (+2.4% to 295K units annualized)
1:00 pm $35B 5 yr note auction
Thursday;
8:30 weekly jobless claims (+3K to 455K)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am Q3 advance GDP (+2.0% frm +1.7% in Q2)
Q3 employment cost index (+0.5%)
9:45 am Oct Chicago purchasing mgrs index (57.5 frm 60.4)
9:55 am U. of Michigan consumer sentiment index (68.0 frm 67.9)

Interest rate markets are likely to continue their narrow trendless range through the week ahead of the QE and elections next week. Over the past two weeks mortgage prices and mortgage rates have been generally flat with prices moving in a very narrow range. The Fed will step up and announce large scale buying of treasuries when the FOMC meeting concludes on Nov 3rd, in the meantime the Nov 2nd elections, while generally conceded to Republicans, is still a soft point for markets; the margins of victories and the number of them will be closely monitored as a measure of consumer discontent that has increased dramatically over the past 9 months. The health care bill a true mess, and government spending have consumers increasingly nervous over the economic outlook. Can the new make up of the House and Senate change the underlying fears of consumers? Will Pres Obama stand strong and use his veto powers to hold health care as it is currently written or will he concede the bill is flawed and work to fix it? These and other key questions will dominate through the remainder of the year.