Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and MBSs took hits yesterday after the FOMC policy statement and Bernanke’s press conference. This morning more minor selling early taking the 10 yr note up another basis point to 1.71%, at 9:00 the 30 yr FNMA 3.0 coupon was unchanged. Early trade in the stock indexes also unchanged from yesterday. 8:30 data; weekly jobless claims were expected to be at 375K up 5K frm 370K last week. Claims fell 29K to 343K and last week’s claims revised frm 370K to 372K. The 4 week average declined 27K to 381K. Nov retail sales expected +0.6% increased just 0.3% after declining 0.3% in Oct; ex auto and truck sales in line with estimates, unchanged. Nov PPI expected -0.5%, was down 0.8%, ex food and energy +0.1% about in line with forecasts. The three data points didn’t have any noticeable reaction in either stock indexes or the bond market. At 9:30 the DJIA opened +6, NASDAQ and S&P unchanged. The 10 yr 1.73% +2 bp while 30 yr MBSs unchanged from yesterday. Yesterday’s reaction to the FOMC policy statement is more indication that the Fed is less and less a factor in the markets. We have noted many times that the Fed’s monetary stimulus hasn’t had much impact on the economy and almost no impact on job creation, even with the Fed saying it would continue to buy treasuries and MBSs at the same amounts over the past six months didn’t impress traders in either stocks or bonds. Low interest rates are a good thing of course, but so far not much has been accomplished. It is the Cliff that overrides everything now. Opinions running about 50/50 on whether we go over or not. In the world of reality though markets are leaning heavily on the idea the Cliff will be avoided. Interest rates increasing slightly and the stock indexes holding well. The take away is that overall markets are expecting a deal will happen before the end of the year. Not set in cement and subject to change on a moment’s notice, but at least for today the sentiment leans toward a deal being achieved. Over the last four sessions the 10 yr note yield has increased 15 bp; 30 yr MBSs about 8 bp (as of 10:00 this morning). The move higher is more technical than fundamental at this point; the 10 failed for the sixth time to break solid resistance at 1.58%, now market longs are exiting pushing rates up a bit. Although we continue to believe, as we have said a number of times here, that the lows in treasury rates occurred last July, we don’t expect rates will increase substantially with the Fed sucking up so much of treasuries and MBSs. The next level of technical support for the 10 yr is at 1.76%, 3 bp higher from here where the 200 day average resides. The safe haven moves into US treasuries over concerns the EU would blow up with the debt crisis that seemed to have no end in sight, is being unwound; the impact is rates increasing a little as concerns over Greece have ebbed for the moment. Also hampering the bond market these days, most recent economic data has been better than economists were expecting; today’s fall in weekly claims is a good example. The economy is teetering but maybe not as vulnerable as many think. The settling down in Europe for the moment and better data on economic performance is currently adding to the weakness in the bond market. Mix in the technical failure to break hard resistance on the 10 yr, traders are currently exiting bullish positions.