Mortgage Rates

Mortgage Rates Started very quietly today; the 10 yr -2/32 at 1.58% unchanged with mortgages unchanged at 8:45 am. 8:30 revealed May housing starts and permits; expected -1.75% starts fell 4.8%, building permits expected -0.7% were up 7.9%. Headlines on starts didn’t look good but April starts originally reported +2.6% were revised to +5.4%. The decline in starts was all n multi-family; single family starts were up 3.2% while multi-family declined 21.3%. There was no noticeable reaction to the data. Building permits climbed to the highest level since September 2008, showing the combination of lower prices and record-low mortgage rates is underpinning demand and encouraging new projects. At the same time, competition from cheaper previously owned properties and stricter lending standards remain hurdles for an industry that’s been the weakest link for the economic expansion. Yesterday the buzz was all about Spain’s interest rates reaching all-time highs; today Spain tits target selling 2 yr notes and yields on Spanish debt declined. Spain’s two-year note yield fell 12 basis points, or 0.12 percentage point, to 5.33% after rising to 5.59% yesterday (US 2 yr notes at 0.29%). Ten-year Spanish rates declined nine basis points to 7.07%, while yields on similar-maturity Italian debt slipped 15 basis points to 5.93%. (US 10 yr at 1.59%). Spain, which requested as much as 100 billion euros to support its banks on June 9, plans to sell 2 billion euros of notes due in 2014, 2015 and 2017 in two days. Greece is trying to form a government with comments from various EU people saying it would “work” with Greece to help on austerity and economic improvement. Meanwhile Angela Merkel is throwing water on any additional assistance without serious austerity remaining. Group of 20 leaders meeting in Mexico focused their response to Europe’s financial crisis on stabilizing banks as the International Monetary Fund raised its lending capacity to shield the rest of the world economy. China, Brazil, India, Mexico and Russia boosted their pledges to the IMF’s global firewall. The US is the major contributor to the IMF. The IMF is likely the center post for any real workouts in Europe, without the IMF the EU, as Greenspan pointed out last week, is a noble but failed experiment. German investor confidence fell the most in 14 years in June as Europe’s sovereign debt crisis weighed on the economic outlook. An index of investors plunged to minus 16.9 from 10.8 in May. That’s the steepest decline since October 1998. Economists forecast a drop to 2.3. The Federal Reserve’s Open Market Committee, which sets the course of central bank policy, begins a two-day meeting today to decide whether more monetary stimulus is needed to boost growth as the labor market stumbles and risks from Europe’s sovereign debt crisis rise. There is wide speculation that the FOMC policy statement tomorrow afternoon will signal more easing from the Fed; while no consensus of any easing, if the Fed does “ease” it will likely be an extension of Operation Twist. By the Fed’s own admission it is running out of bullets in the effort to increase employment, hard to square another easing move will have much impact. Treasures as time moves on today, are weakening taking mortgage prices lower. US stock indexes have traded better all morning and are increasing gains going into the open at 9:30. Technically the US rate markets remain bullish but have been losing momentum recently. Our first minor support on the 10 yr note is at 1.65% (currently 1.60%), the major support is at 1.70%.