Mortgage Rates

Mortgage Raes Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early today a slightly better open in the US bond and mortgage markets but by 9:00 the gains were erased with the 10 -3/32 at 1.86% after trading at 1.84% early this morning; 30 yr MBSs at 8:30 +6 bp, at 9:00 -3 bp . Stock index futures trading pointing to a lower opening at 9:30 but not much; fell on concern changes in China’s government policy may slow growth and hurt the global recovery. China cracking down on exploding real estate prices; the government ordered stricter real-estate curbs and service industries’ growth slowed. The Shanghai index fell the most in 3.5 years on the report. At 9:30 the DJIA opened -27, NASDAQ -10, S&P -4; 10 yr note -3/32 at 1.86% +1 bp after 1.84% earlier this morning and 30 yr MBSs unchanged frm Friday’s close. There are no economic reports today. The DJIA is still trying to break into new all-time highs, not yet able to break it. Last Thursday the index came within 40 points of the high but failed and backed away; the high is 14,164, the index closed Friday at 14,090. This is employment week; Friday the Feb employment data, according to early estimates, will sow non-farm jobs increased 171K with non-farm private jobs up 195K and the unemployment rate down to 7.8% frm 7.9% the last couple of months. Meantime on Wednesday ADP will report its private job growth at +173K. The Fed continues to debate the QEs; Janet Yellen, the Fed’s vice chairman saying the Fed should press on with $85B in monthly bond buying while tracking possible costs and risks from the unprecedented program. “Turning to the potential costs of the Federal Reserve’s asset purchases, there are some that definitely need to be monitored over time,” Yellen said today. “At this stage, I do not see any that would cause me to advocate a curtailment of our purchase program.” … “At this stage, there are some signs that investors are reaching for yield, but I do not now see pervasive evidence of trends such as rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would clearly threaten financial stability.”… “Ending asset purchases before observing a substantial improvement in the labor market might also create expectations that the amount of accommodation provided would not be sufficient to sustain the improvement in the economy.” ….“Moreover, a weakening of the economic environment could also create significant financial stability risks.” A few others at the Fed are not so sure; Fed Governor Jeremy Stein said last month that some credit markets, including leveraged loans and junk bonds, show signs of overheating. Kansas City Fed President Esther George has warned that prices of some farm land have hit “historically high levels.” Sequester took affect Friday; after weeks of scaring hell out of everyone with dire comments of 170K job losses, delayed airline flights, the military stripped to the bone of readiness and teachers on bread lines; now that it has happened more clear headed comments are emerging from the White House saying it will take months to implement the required cuts…not so dire considering in the end while cuts will likely occur there are more realistic ways of implementation than what had been touted. One thing that could be done is to allow agencies to re-budget and eliminate the hard detailed specifics built into the legislation. You don’t cut a budget by starting with firing the president and management (teachers, air traffic controllers, construction workers), you start with cutting fat, and in Washington there is plenty of that. The end game though is that there will not likely be many that will lose their jobs. Not a good idea for either political party. Coming next; on March 27th the government will be out of money…again. This month will have plenty of volatility as our “leaders” work to avoid a government shutdown that will furlough many government workers. The bellwether 10 yr note is holding at 1.85% so far after 4 attempts unable to break the now strong resistance level. Both the bond and mortgage markets are registering overbought level based on the momentum oscillators suggesting the possibility of consolidation at these levels with potential increases in rates. That said we remain constructive over the longer view; however, as we have noted here, we are not expecting interest rates will decline much more frm current levels….maybe 10 more basis points in yield for the 10 yr note.