Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A flood of data at 8:30 this morning has markets scratching heads. Weekly jobless claims were a lot better than thought, -26K to 359K with estimates at 380K. August durable goods were expected down 5.1% and with transportation excluded -0.3%; as released orders fell 13.2% and ex transportation -1.6%. Orders for non-defense capital equipment excluding airplanes rose 1.1% after decreases of 5.2% in July and 2.7% in June. Q2 GDP final revision was expected unchanged from the preliminary last month at +1.7%, as reported Q2 GDP was revised lower to +1.3%. Claims were better but durables and Q2 GDP weaker suggesting Q3 won’t be as good as many were thinking. Prior to the 8:30 data the DJIA futures was up 60; by 9:00 the index added another 10 points to +70. The 10 yr note rate at 9:00 at 1.64% +3 bp with 30 yr MBSs -9 bp. Spain’s bond market improved a little today with the 10 yr yield declining 3 bp after a jump the last couple of days as protests against austerity roiled markets. Italian securities rose as borrowing costs fell at a 6.65 billion-euro ($8.6 billion) auction of five- and 10-year debt. German 10-year bund yields were little changed after falling to the lowest level in three weeks. Spain is set to announce its budget defying anti-austerity protesters and dissent from regional leaders as he struggles to convince investors he can contain the crisis and avoid asking for a full bailout. The bond market is higher in rates this morning for the first time in 8 sessions, the longest sustained rally since Dec 2008. Bonds have been supported as investors returned to some safety moves with Greek and Spanish citizens protested and clashed with police over austerity cuts that are driving unemployment to 23% in Spain. Spain and Italy are trying to avoid asking the ECB for a bailout, but the headwinds are severe. Money is leaving Spanish banks in buckets as investors continue to exit, adding to the potential that a bailout frm the ECB is unavoidable. At 9:30 the DJIA opened +46, NASDAQ +11, S&P +5. The 10 yr treasury note at 1.65% +4 bp. 30 yr MBS price -29 bp. MBS prices have increased for 8 days an due for a pullback. At 10:00 August pending home sales (contracts signed but not yet closed) by the NAR. Pending sales were expected up 1.0%; as reported sales declined 2.3% yr/yr though up 10.7%. The NAR saying the decline is a result of small inventories especially in lower cost homes. The initial reaction to the report improved the mortgage market slightly and drove the stock indexes off their early strong levels. At 1:00 this afternoon Treasury will finish the week’s auctions with $29B of 7 yr notes; we expect the auction to see decent demand. The decline in mortgage prices this morning doesn’t signify any change in the overall direction in prices. It was very likely to occur as we mentioned on Tuesday, the bond and mortgage markets were due for a pullback. All that was needed was a reason, this morning Europe looks more relaxed for the day and US stock indexes were also due for a rebound. Even the soft durable goods data this morning didn’t drop the stock indexes but like the bond market we expect the indexes to continue to decline with a real potential of a major decline in the next month. Interest rates should continue to fall with our target for the yr note at 1.56% (1.63% now).