Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Typically after 4:00 pm each day there isn’t much movement in MBSs or treasuries; yesterday that wasn’t the case. After we did the 4:30 PM report mortgage prices continued to decline, MBS prices and treasury prices continued to fall adding 20 basis points to the decline in MBS prices (on the day -44 bp), the 10 yr note yield at 4:00 1.64%, at the close 1.65%. This morning MBS prices are better as are treasury prices on weak stock markets in Europe and early weakness in US index futures. At 8:30 August personal income and spending were reported. Consumers didn’t spend in August; spending barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum. Household purchases rose 0.5%, matching the median estimate of economists, the biggest gain since February, according to data from the Commerce Department. Looks good on the headline but 0.4% of the increase was due to increased prices for food and gasoline; adjusted for the higher prices real spending increased just 0.1%. Incomes rose 0.1% against estimates of 0.2% expected in August, matching the previous month’s gain after the Commerce Department revised down those figures. July income originally reported up 0.3% was revised lower to +0.1%. The saving rate dropped to 3.7%, the lowest since April, from 4.1% in July, the lowest since last April. The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA. Spain will reveal the size of the hole in its banking system with the publication of stress test results later today (12:00 eastern), the credibility of that estimate risks being undermined by a deteriorating economic outlook. The test on 14 banking groups is a precursor to the formation of a so-called bad bank to which troubled lenders will transfer soured real estate to bolster their balance sheets. The test is to assess the damage to banks over the property crash is a condition of Spain’s 100 billion-euro ($129B) banking bailout agreed in July. Spain must present convincing estimates of banks’ capital needs and realistic valuations of toxic real estate assets to spur investment and economic growth. Spanish 10-year bonds yields climbed above 6.0% before the results of stress tests on the country’s banks; 6.0% is considered pivotal on Spain’s 10 yr debt. Over 6.00% and investors get worried, under it seems to increase enthusiasm that Spain can avoid defaults. At 9:30 the DJIA opened -63, NASDAQ -13, S&P -6. 10 yr note at 9:30 1.62% -3 b; 30 yr MBS price +14 bp frm yesterday’s close. At 9:45 the Sept Chicago purchasing mgrs. index was expected at 52.8 frm 53.0 in August; as reported the index the index plunged to 49.7, the lowest reading on the index since Sept 2009. The DJIA dropped 40 points on the news to over -100 on the day. MBS prices got a small boost on the reaction to the very weak report from the Mid-West reading on manufacturing, nothing for the 10 yr note. Index readings under 50 indicate contraction, the report this morning adds belief that manufacturing isn’t going to add much to economic growth. Next week markets will get the national ISM manufacturing index and the national services sector reading. At 9:55 the Sept final U. of Michigan consumer sentiment index was expected at 79.0 frm 79.2; as reported the index hit at 78.3. While 78.3 looks bad compared to the mid-month reading at 79.2, it is substantially better than at the end of August which was 74.3. The index I subject to volatility, that it was up on a month to month basis it is a better report but still weaker than what had been expected. The reaction in the stock market dropped the DJIA t0 -111. There was no improvement in MBSs or treasuries on the report. The bond and mortgage markets continue to consolidate recent improvements; today not much enthusiasm in either market so far after selling yesterday. The longer outlook continues to look good; however we remain somewhat skeptical that the interest rate market don’t have much more declines ahead. We believe rates will fall more but won’t be much more as rates are so low that there is little likelihood they can go a lot lower.