Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Yesterday the 10 yr note and MBSs rallied after the FOMC minutes, driven by the Fed still willing to keep buying treasuries and mortgages for the time being. The stock market got hit hard yesterday afternoon, also after the FOMC minutes were released. The DJIA saw its biggest loss in weeks as did the NASDAQ and S&P. Out of the box, the decline in stocks fueled talk that the correction that has been expected for the last few weeks may have begun yesterday. As noted in yesterday’s afternoon report, a few hours of selling doesn’t provide enough evidence that stock indexes are set to decline but it is a plus for the bond and mortgage markets, if it continues. This morning prior to 8:30 the DJIA was headed for a decline of about 50 points at the 9:30 open. Most all equity markets throughout the world were weaker today; all the key markets in Europe and Asia followed the US market lower. At 8:30 weekly jobless claims were reported up 20K to 362K after declining last week by 27K. The increase was expected but was a slightly more than estimates. 8:30 also brought Jan CPI; the overall index was expected +0.1%, as reported CPI was unchanged, however when the food and energy data is extracted CPI was up 0.3% against estimates of +0.2%. The two reports took some of the weakness out of stock index futures trading. At 9:00 the 10 yr traded at 1.98% -3 bp frm yesterday’s close that pushed the yield down 2 bp. 30 yr MBSs at 9:00 +9 bp frm yesterday’s 19 bp improvement. The DJIA -12 at 9:00 suggesting an open down 25. At 9:30 the DJIA opened -33, NASDAQ -13, S&P -7; 10 yr at 1.98% -3 bp and 30 yr MBSs +9 bp frm yesterday’s close and up 28 bp better than 9:30 yesterday) Three more reports at 10:00. The Feb Philadelphia Fed business index expected at +1.1 frm -5.8 in Jan shocked, declining to -12.5; a huge fall and increased selling in stock markets. Being a Feb number it is considered a fresh look. Jan existing home sales were expected to have declined 0.8%, sales increased 0.4% to 4.92 mil units. Sales of existing homes increased 9.0% yr/yr; inventory levels fell another 5.0% and are down 25% yr/yr. The average sales price $173,600.00. Jan leading economic indicators were expected up 0.3%, as reported up 0.2%. A number of markets seeing selling in the last couple of days; crude oil dropped $2.20 yesterday and is down another $2.00 so far this morning, gold lost $41.00 yesterday and other commodity markets also lost ground. Gold over the last few weeks has fallen over $100.00/oz. Global stock markets also slipping for the moment. Technically the 10 yr note yield has dropped to its first technical resistance at its 20 day average at 1.97% (we like the 20 day as an earlier heads up than longer averages). The bond and mortgage markets are looking better but still have a wider bearish trend. We want the 10 yr to break below 1.95% before we are willing to become bullish for the near term. We do not expect US interest rates to decline much more below 1.80% at the best; there are those looking for the 10 to break back to 1.50% levels, we just don’t see that at this time. The Fed is continuing to chatter about when and how it will begin to unwind its QEs; it will be a slow extraction, likely taking the easing’s back slowly. Presently the bond market is ignoring the comments frm Fed officials and focusing on the direction of equity markets. At some point when the bond market begins to focus on the end of the QEs, whenever it begins, interest rates will begin to increase. With continuing talk frm the fed abut an exit strategy interest rates are unlikely to fall as much as some are now touting.