Mortgage Rates

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


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Friday, December 31, 2010



The final day of the year started with the bond and mortgage markets a little better and stock indexes lower. Trading volume will be very low with most traders and investors out until next year. There are no economic reports today, no Fed actions and nothing markets can look forward to other than squaring positions at year end. Although better this morning it is likely that by 2:00 this afternoon when the bond markets close the bond and mortgage markets won't be much changed from yesterday's closes. We suggest ignoring the trading today regardless of how it ends.

Take a look at the 4.0 FNMA Jan 30 yr coupon chart; the present price is braking above its 20 day moving average for the first time since Nov 8th; as we noted over the past couple of days technicals remain bearish but are improving. The bellwether 10 yr treasury at 9:00 sat at 3.33% (see below for 10:00 level) and is closing in on its 20 day average on the yield chart. While looking a little better the interest rate markets still have a bearish tone, we need the 10 yr to move under 3.25% to change the near term trend.

Although recent improvement in the bond and mortgage markets is very welcome, that volume is very thin keeps me from becoming too friendly to the rate markets now. We need to see improvement on more trading, that should begin on Monday with everyone back to doing real business. The overwhelming consensus now for 2011 is for the economy to continue to expand, we remain skeptical however. There are two key components to consider when adopting the bullish outlook; the housing sector and consumer spending, both raise serious questions. 2011 is not going to be good for housing, likely about the same as this year; consumer spending was better for the holidays but will consumers continue to increase spending in 2011-----a huge question and the defining issue for the economy in 2011. We won't have a good handle on that until we get a look at Jan economic data in Feb.

On Dec 31st 2009 the 10 yr note yield was 3.84%, today 3.35%. Mortgage rates in 2010 also fell 45 basis points. Looking for rate market improvement in Jan and possibly the first quarter, if we see that the mortgage markets will not fall back to the lows seen this fall prior to the beginning of Nov. 4.5% mortgage rates are likely the best we can expect unless the economic outlook changes dramatically. We are not as bullish about 2011 economic growth as most, if we are right the bond and mortgage markets should do better in the first half of the year. Look for continued volatility in the markets early next year.