Mortgage Rates

Motgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very quiet this morning to start the day. No economic data to look at today but the countdown to the Nov employment data is on. In Europe and here the stock markets are generally flat. The 10 yr note at 9:00 up 2/32 at 1.62%, earlier the 10 was off 2/32. 30 yr MBSs at 9:00 unchanged. The Fiscal Cliff negotiations continue; yesterday Republicans offered their plan to increase revenue and cut spending, up to that time Pres. Obama was chiding Republicans to detail their plan. Now that it is out it met with no interest to the President because once again it didn’t call for tax increases on the wealthy and according to spokespeople for the Administration the plan was short on specifics. So another day clicks off the calendar with no progress; it is highly unlikely there will be any agreed plan to cut spending and increase revenues prior to late Dec. We don’t expect the economy will go over the Cliff but there is reason to think that there won’t be a deal and temporary extensions to Bush tax cuts will occur. At year’s end the Fed will end Operation Twist, selling short dated maturities while buying longer term Treasury debt to keep rates from increasing. The Twist will end because the Fed doesn’t have much more short dated treasuries in its portfolio, but the Fed will continue to purchase outright the same amount of longer maturities (about $45B a month). The Fed will also continue to buy $40B of MBSs each month. With the Fed buying long term debt rates are unlikely to increase much; however that is no reason to believe rates will not increase. If, when, the Cliff is avoided the likelihood of a strong rally in stocks could run the 10 yr note to as high as 2.00% and 30 yr mortgages up 25 bps in rates frm present levels. The premise for the potential of higher rates is totally predicated on the Cliff being avoided and continued progress with the EU’s debt crisis. In the near term the bond and mortgage markets are locked in narrow ranges; the 10 yr finds resistance when the yield falls to 1.60% levels, unable to break and hold lower levels. On the other side, the 10 yr finds support at 1.65% recently, a very narrow range that has held the 10 yr in check for almost two weeks. The 10 and 30 yr MBSs continue to hold slight bullish technical readings, under the 20 and 40 day averages on the 10 yr rate, and prices for 30 yr MBSs above the two key averages. Momentum oscillators still bullish but closely hugging the pivot at 50. Economists have cut their forecasts for the yield at the end of this year to the lowest since Bloomberg began surveying for the projection, on concern U.S. politicians will struggle to avert the fiscal cliff. The 10-year rate will probably be 1.64% by Dec. 31, less than the 1.75% rate that economists saw at the start of November, according to Bloomberg surveys of the predictions. At 9:30 the DJIA opened -2, NASDAQ -4, S&P -1; 10 yr note 1.62% unch and 30 yr MBSs unchanged from yesterday’s close. Gold is taking a he hit this morning, down over $25.00, crude oil down $1.00. By 9:45 this morning, after opening lower the DJIA was up 36 points. The 10 yr note and mortgage rates unchanged frm yesterday’s closes. The rest of the day is likely to be quiet unless there is a tape bomb dropped on the Cliff issue.