Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims this morning were better than forecasts, claims declined 7K to 340K with estimates for an increase of 11K. The 4 wk average now at 348K, suggesting that the employment sector while still weak is getting better---slowly. Claims today declined to a six week low. People collecting emergency and extended payments decreased by about 225,400 to 1.78 million in the week ended Feb. 16. The reaction added to stock index futures that prior to the 8:30 report were flat. The interest rate markets sold off on the news taking the 10 yr note to 1.97% at 9:00, up 3 bp frm yesterday’s increase of 4 bp in yield. 30 yr MBS prices at 9:00 -21 bp frm yesterday’s decline of 26 bp. Other data at 8:30; Q4 productivity revision -1.9% frm -2.0% originally reported. Q4 unit labor costs +4.6%; weaker productivity generally increases unit labor costs. January US trade deficit at -$44.45B slightly higher than expected. The three reports didn’t cause any movement in markets, it is all about the decline in weekly claims this morning. At 9:30 the DJIA opened +18, NASDAQ +2, S&P +1; 10 yr note 1.97% +3 bp, 30 yr MBSs -21 bp. In Europe both the Bank of England and the ECB left their interest rates unchanged. There were a few out there thinking the ECB might lower rates. Europe’s stock markets were supported today on the Fed Beige Book released yesterday afternoon saying the US economy is growing. European Central Bank President Mario Draghi said data suggest the region’s economy will stabilize this year. Draghi’s comments pressured German bunds, the 10- year bund yield climbed three basis points to 1.49%. On the political front; the President picked up the dinner tab last night for he and 11 top Republicans, he invited them in a gesture to resume talks on long term deficit reduction. This afternoon he will lunch with Paul Ryan, Ryan is chair of the House Budget Committee. The President isn’t giving up on tax increases matching spending cuts, Republicans still staunchly saying no tax increases. At least they are eating well these days. The rest of today should be relatively quiet with the Feb employment report out at 8:30 tomorrow. The report is historically volatile, it more the norm that the data will not meet the forecasts in either direction than estimates on target. The report usually leads to high volatility in markets. The current “consensus” estimates are for non-farm payrolls +171K, non-farm private jobs +195K, the unemployment rate at 7.8% down frm 7.9% in Jan. The outlook for lower interest rates has faded quickly, as long as equity markets continue to draw money in the bond market has little chance of improving. Since last Friday the 10 yr note yield as of 9:30 today has increased 13 basis points in yield, 30 yr MBSs have lost 67 bp in price and up 6 bp in yield. Technically the 10 yr and 30 yr MBSs have lost all of the momentum that we had last week. We have noted numerous time her that we don’t expect interest rates to decline much, especially with US and global equity markets rallying. The Feb ADP private jobs report yesterday better than expected has encouraged traders to increase the forecasts for tomorrow’s BLS employment report. Europe, China and in the US central bankers have been but with more optimistic outlooks, investors turning away from low return fixed income investments. The stock market is technically overbought and due for a pullback; when it actually does occur the bond market will see some improvement but not much. The bellwether 10 yr is very unlikely to fall below 1.85% at best. Any improvement in the rate markets should be seen as opportunity and not the beginning of any major change in sentiment.