Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com It isn’t good for interest rate markets when the stock markets are on a rampage higher, that of course should not be news. Yesterday the DJIA made a 200 year high, this morning in early trading in futures markets the key US indexes were adding to yesterday’s gains and US interest rates are higher. From a technical perspective we warned a couple of days ago that the 10 yr note was finding strong resistance at 1.85%, trying five times in six sessions and failing; all momentum oscillators had moved to overbought levels, and the MBS price finding resistance at key chart points and unable to break above its 40 day average. Taking a broader, more general look at mortgage rates; going back to Jan 25th 30 yr mortgage rates have changed very little. In terms of price 30 yr MBSs have traded in a 100 basis point range and about 10 basis point rate range. Rather tame when viewed in the wider perspective. At 8:15 this morning ADP payroll people released its data on non-farm private jobs, better than what had been forecast. ADP said private jobs grew by 198K in Feb and Revised the Jan growth from +192K to +216K. The better report is in line with the estimates of private jobs from the BLS on Friday (+195K), the estimate for all non-farm jobs is +171K indicating markets are expecting more cuts in government employment. The unemployment rate in Feb is expected at 7.8% frm 7.9% in Jan. At 9:30 the DJIA opened +41, NASDAQ +8, S&P +4. 10 yr note -11/32 at 1.94% +4 bp and 30 yr MBS prices down 25 bp. At 10:00 Jan factory orders were expected -2.2%; orders about right on, -2.0%; no reaction to the report as usual. This afternoon at 2:00 the Fed will release its Beige Book, the Fed’s economic report from the 12 Fed districts. More detail by region but generally nothing surprising in the report. The Book is used by the FOMC when it meets in two weeks. The weekly MBA mortgage applications increased last week after declines in the previous three weeks. The overall composite index +14.8%; purchase index +15.0% and the refinance index +15%. The gains reverse a run of prior declines to lift the purchase index back to where it was in early February and the refinance index back to where it was in mid-January. Last week rate market declined, doesn’t take much to motivate buyers these days. The high percentage gains though are gains compared to the last few weeks of declines in apps. Yes, the DJIA made a new high yesterday but it isn’t a new high when adjusted for inflation. To make an inflation adjusted high the DJIA has to go up another 8.0%. The average stock price earnings ratio is 14, 20% less than when the stock market was at its high in 2007. Based on that and the inflation adjusted level the index has a lot further to go if one assumes earnings will be as good as in 2007. Longer maturity treasuries (10 yr note) are setting up another wide range similar to the 10 bp yield range that held the rate in check from late Jan until late Feb (2.05% - 1.95%); the new range on the note 1.95% - 1.85%. Our longer range outlook remains the same; interest rates won’t increase much frm present levels, and will not fall much either. There is little reason now to expect another big decline in rates. The forecasts echoed by a few that the 10 yr may decline to 1.50% and mortgage rates down 25 bp frm here are likely to be disappointed. With the Fed supporting rates with the QEs investors want more return; the equity markets are the only markets where higher returns are potentially possible.