Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com


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Thursday, December 30, 2010



Treasuries and mortgage markets started weaker this morning after the strong rally yesterday on the solid 7 yr note auction. Tuesday prices crumbled on the weak 5 yr note auction, yesterday prices rallied; the result was prices ended the two days unchanged from Monday's closes. Huge swings with no direction. At 8:30 this morning weekly jobless claims were expected to be down about 5K, they fell 34K to 388K, the lowest weekly filings since July 2008. It was also the first time claims were below 400,000 since July 2008. Continuing claims however increased to 4.128 mil from 4.071 mil last week; the 4 wk average for claims declined 12.5K to 414K. The Labor Department revised the prior week’s figures to 422,000 from a previously reported 420,000. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 151,500 to 4.53 million in the week ended Dec. 11.

Not much reaction to the claims data; the 10 yr note at 9:00 -5/32, mortgage prices at 9:00 -5/32 (.15 bp). The weekly claims included the Christmas week leaving one less day for unemployed to file. Also it is Dec and employers are less likely to fire workers. Markets are not moving much on the better report but it does add more to the outlook that 2011 will see better job growth and stronger economy.

At 9:30 the DJIA opened -9; like the bond market the equity market isn't biting on the decline in claims, waiting for the Chicago PM index.

At 9:45 the Dec Chicago purchasing mgrs index, expected at 61.0 frm 62.5, jumped to 68.6. All sub components were also strong; new orders index increased to 73.6 frm 67.2, employment component to 60.2 frm 56.3 and the prices pd component to 78.2 frm 70.7. The initial reaction put more selling in the rate markets, but not much, and bounced the DJIA up a little. With consensus building that 2011 will be a stronger year economically, the regional data adds more conviction to that outlook. Any reading over 50 indicates expansion, the higher the index, the stronger improvement.

The final scheduled economic report for 2010 hit at 10:00; Nov pending home sales. Nov sales were expected to decline 3.0% after a +10.4%; as reported sales increased 3.5%, yr/yr sales were down 5.0% frm Nov 2009. Another better report this morning.

Tomorrow the bond and mortgage markets will trade until 2:00 pm; not much expected with most traders out and no scheduled news.

Technically, the bond and mortgage markets remain bearish. To change that the 10 yr note needs a close below 3.25%. The past two weeks haven;t changed much from mid-Dec; techincals still bearish but a little better than two weeks ago. Be sensitive to the technicals, the embodiment of all participants is reflected in the price action. This morning markets looked at three economic reports that were better than estimates yet there has been very little reaction to them. The 10 yr and mortgages are trading lower but holding better than we would have expected given the volatility these days and more evidence that the economy is improving with inflation pressures edging higher with the prices pd report in the Chicago data this morning. Trade is thin again today in all financial markets; nothing now scheduled until next week.