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. Treasuries and mortgages opened better this morning on weak stock markets in Europe and early trade in the US futures markets. The 10 yr note is now back below its key pivotal 200 day average on the yield (the 200 day at 1.82%), at 9:00 the 10 at 1.79%. Europe’s key stock markets all lower today taking the US indexes down ahead of the 9:30 open. At 8:30 the current-account deficit in the U.S. narrowed more than forecast in the second quarter, helped by a pickup in exports and a bigger income surplus. The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 12% to $117.4B from $133.6B in Q1. The median forecast of economists in a Bloomberg survey called for a $125B deficit. Chicago Fed President Charles Evans said this morning that the Fed is ready to keep on easing as long as it has to, to keep the economy from sliding further. Bernanke last week said the Fed will purchase $40B of MBSs each month with no mention of an eventual amount. His decision sent MBS prices spiraling higher last Thursday, but Friday and yesterday about half of the Thursday gains had been eroded as selling set in Friday and a little more yesterday. “Given the slow and fragile recovery, the large resource gaps that still exist, and the large risks we face, it remains clear that we needed a more resilient economy,” Evans said.. The Fed’s actions last week “provided a more accommodative monetary policy that can help us achieve such resilience.” The Fed is on a buying binge that has inflated its balance sheet to over $3B and likely will increase to $4B as long as the Fed has to try to prop up an economy that is being dragged down by Europe and China’s economic slowdown. Germany’s equivalent to the U. of Michigan consumer sentiment index is still weak. Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010. Economic growth in Germany will slow to +0.8% for 2012 from +3% last year, the Kiel-based Institute for the World Economy said last week. At 9:30 the DJIA opened -23, NASDAQ -6, S&P -3. The 10 yr note rate at 1.79% -5 bp 30 yr MBSs +30 bp, FHAs +35 bp, 15s +18 bp Germany’s 10-year bund yield dropped four basis points to 1.64%; our 10 yr followed suit so far. Spain’s 10-year notes fell seven basis points to 5.91%, after climbing as high as 6.06%. According the most recent data, demand for U.S. financial assets rose more than forecast in July as investors sought shelter from the debt crisis in Europe. Net buying of long-term equities, notes and bonds totaled $67 billion during the month, compared with net purchases of $9.3 billion in June, the Treasury Department said today. Since July however, the risk on flight to US treasuries has ebbed with ECB plans to buy debt from sovereign countries; although like everything else from the region, leaders still can’t get their act together. At 10:00; the Sept NAHB housing market index was expected at 38 frm 37 in August. the index increased to 40 on increased builder optimism. The report indicated what we all know, that credit conditions are restraining the housing sector. Banks continue to lend but won’t lessen their very restrictive requirements and are stuck on 80% LTVs to achieve the lower rates. The interest rate markets looking slightly better this morning but still most of our technical data remains negative for the 10 yr note. We would need a close on the 10 yr treasury below 1.70% to improve the near term outlook. MBSs continue to hold bullish bias however. To drive mortgage rates lower the 10 yr will have to improve; there is a limit how low rates of mortgages can go unless the treasury markets decline in yields. Market volatility is still with us and can erupt and anytime in these uncertain conditions. The fiscal cliff is out there and won’t see any decisions until after the November elections. It isn’t likely that Congress and the Administration will let the tax cuts expire or the SS payment increase to take effect. That said, traders will not want to press the issue in either equity or fixed income markets.