Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The tight trading range in the bond and mortgage markets continues today, however this morning the 10 yr note yield increased to 1.64% +2 bp frm yesterday and MBS prices weaker after increasing yesterday. Since early November the interest rate markets have essentially been flat with no significant changes. There has been literally no change in mortgage rates for six weeks. Both stock investors and bond traders are willing to sit quietly until there is something out of Washington on the Cliff negotiations. No progress is being made; the president refuses to discuss spending cuts until the Republicans agree to increasing taxes on the so-called wealthy. Neither side wants to compromise, each believing the other will get the blame if no deal is reached and the economy goes over the Cliff with higher taxes for all. In his first comments since meeting with Boehner Dec. 9 at the White House, the president didn’t repeat frequent complaints about Republicans holding tax cuts for most Americans “hostage” because they oppose higher rates for wealthiest, and said he was ready to come to an agreement. Since Boehner complained Dec. 7 that Obama had wasted a week, statements from the speaker’s office have been milder, too. Some are now believing there is thaw in the stand-off; we have been here before only to back-slide into recalcitrant squabbling. Europe’s stock markets are better today on increased optimism in Germany; the Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 6.9 this month from minus 15.7 in November. Economists had forecast a gain to minus 11.5. The US equity market is following the movements in Europe’s markets for the last couple of months. This morning the US stock indexes are better. The Oct US trade deficit widened to its worst level in four years; the deficit at $42.2B was widely expected however. Declines in exports as global economies contracted contributed to the increase from -$40.0B in Sept. No reaction to the report, which is normal for the monthly report. At 9:30 the DJIA opened +31, NASDAQ +17, S&P +5. 10 yr note at 1.65% +3 bp. 30 yr MBS price -34 bp. At 10:00, Oct wholesale inventories, not a market mover, expected at +0.4%. Inventories as reported +0.6%. The NFIB (National Federation of Independent Business) index fell by 5.6 points to 87.5, one of the lowest readings on record which the report attributes to "an overwhelmingly negative response" among small businesses to the outcome of the presidential election. The report attributes the pessimism to the fiscal cliff, the "promise" of higher health-care costs and the "endless onslaught" of new regulations. Nine of 10 factors declined in the month with sales expectations and earnings trends especially weak. The one factor that did improve is employment. The FOMC meeting begins today, nothing until tomorrow though when the meeting ends with the policy statement. The Fed is highly likely to announce it will continue to buy treasuries when Operation Twist expires at the end of the month. Tomorrow after the meeting ends Bernanke is scheduled to hold a press conference at 2:15 (the statement will be released at 12:30). Between the FOMC meeting and the Cliff negotiations traders and investors just marking time with no significant movement in bonds or stocks over the last few weeks. With the 10 yr note and MBSs both in tight ranges, the technicals lose a little of their significance. This morning with the 10 yr note yield at 1.65% it is now above its 20 day average and testing its 40 day. The 30 yr FNMA coupon breaking below its 20 and 40 day averages. The relative strength indicator on the 10 yr note continues to hang around the 50 neutral area as we would expect with the non-trending market. Expect another quiet day; stocks better so far but may back off this afternoon. The bond and mortgage markets weaker but also may re-gain some of the price declines this afternoon. That said, we still don’t hold to the view that US interest rates will decline much frm present levels. There is a better chance of rates increasing a little than declining.