Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets opened weaker this morning with US stock indexes following all of Europe’s key markets higher. Last Friday the 10 yr note moved to 1.60%, the key resistance, it held and this morning n early activity the 10 down 7/32 (21 bp) at 1.64%. 30 yr MBSs at 9:00 down 21 bp. This week is employment week and the two ISM indexes (manufacturing and services). Normally traders would direct most attention to the reports but this isn’t a normal situation; the overriding concern for markets is the fiscal Cliff that is likely to dominate through most of Dec. It is not likely the two parties will agree on anything until the final hour. Neither party can afford to disappoint their core bases and will debate the issue right to the end. Will the country go over the Cliff? It is all that is being talked about; there isn’t any true consensus about the outcome. This morning after the weekend news talk shows it appears the negotiations are going now where. It is early in the game though and no one should form any hard opinion on the outcome. Going over the Cliff has markets believing the economy will fall back into recession as tax hikes kick in. Given the present hard stance from the Administration that what has been laid out is not subject to debate, the atmosphere today is contentious. In the end we expect Congress and the Administration will agree to a temporary fix by extending the Bush tax cuts and the payroll tax cut into 2013 for a few months; we don’t see a grand compromise this month. Helping the equity markets early this morning, China’s manufacturing index was the highest in seven months. At 9:00 the 10 yr note at 1.65%, 30 yr MBS price -28 bp frm Friday’s close. At 9:30 the DJIA opened +47, NASDAQ +19, S&P +6; 10 yr note 1.65% +3 bp, 30 yr MBS prices -21 bp. Two reports out at 10:00; Nov ISM manufacturing index was expected at 51.2, down frm 51.7 in Oct. The index dropped to 49.5, the lowest level since July 2009 and under 50 indicating contraction. On the release the stock indexes gave up all the early gains. The 10 yr note yield improved by 1 bp to 1.64% and MBS prices improved frm the 9:30 levels. Oct construction spending, pushed into the background by the ISM index increased 1.4% much stronger than the 0.4% expected. The rate markets are well grounded at current levels; nothing has provided any reason to move rates higher or lower. Investors mostly not involved with the Cliff and Europe so uncertain. At these low levels of rates it will require a major shock to push interest rates lower. The wider belief within the capital markets is that long term US rates are more likely to increase than fall. We are hearing people like Mohammad El Arian saying 2.00% for the 10 yr note, but is does depend on how Washington deals with the Cliff crisis.