Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Friday, October 28, 2011


Wednesday and Thursday hit hard on the bond and mortgage markets; the 10 yr note in the two days increased 25 bp in yield, mortgage rates up about 18 bp. The 10 yr price drop was 75/32, mortgage prices fell 34/32. The stock market measured by the DJIA increased 500 points in two days. This morning the 10 yr at 9:00 +12/32 at 2.34% -3 bp, mortgages at 9:00 +11/32 (.34 bp). It is not unusual that markets are trading a little better early this morning after the huge moves since Wednesday. Of course the moves were triggered by what on the surface has been taken as a fix for Europe's debt problems----at least for the time being; That China is saying it may be interested in buying some of the debt from the EFSF has been greeted with optimism (maybe too much), and the increase in the EFSF fund to 1T euros announced yesterday and get banks to take a 50% haircut on Greek debt was likely overdone but it was a little step forward.


In the meantime European officials are studying the idea of an International Monetary Fund channel for money for their enlarged rescue fund, as China said it needed more detail on any potential plan before deciding whether to contribute. China will want a lot from the EU, ECB and IMF before it actually commits; that country is in the driver's seat and will likely extract a lot of guarantees to step into the swamp of debt.

The last couple of months were marked with doom and gloom, savvy investors were heavily short equity markets expecting the US and Europe would fall back into recession. The current news out of Europe that sent US stock markets up yesterday was in part fueled by shorts having to cover as the computers were screaming to get out. Putting some perspective on all of it; Europe's problems are far from being under control, the US stock market has moved to anticipate the end of Europe's problems is at hand; the bond market is simply tracking moves in equities with no confidence on the Fed or economic outlook-----letting stock traders set the tone.

Next week the FOMC will meet, after the meeting and the policy statement Bernanke will hold a press conference, given recent events in Europe and the increase in US interest rates, especially mortgage rates his press conference will be one of the more critical ones he has held in months.

At 9:30 the DJIA opened down 14 points, the 10 yr note -12/32 at 2.34% -3 bp and mortgage prices up 10/32 (.31 bp).

At 8:30 Sept personal income was weaker than expected, up 0.1% against estimates of +0.3%; spending was on the mark, up 0.6%. Q3 employment cost index, expected up 0.6% was better in a sense up 0.3% and +2.0% yr/yr. There was no noticeable reaction to the two releases. At 9:55 the U. of Michigan consumer sentiment index was expected unchanged at 57.5, as reported the index was 60.9; current conditions index 75.1 frm 73.8, expectations index 51.8 frm 47.0 and the 12 month outlook at 45 frm 37. A better read than the consumer confidence report on Tuesday but there was no reaction to it in equities or the bond market.

For three weeks we set 2.30% on the 10 yr as support that must hold; yesterday the note ran through it to a high of 2.41% before closing at 2.37%. Now we look at 2.30% as a resistance level. Yesterday's breakout over 2.30% can't be confirmed yet, we want to see a day or two over that level; short covering yesterday may have exaggerated the move higher. That said, the bond and mortgage markets have been technically bearish for weeks and will not likely change unless there is a major change in sentiment over Europe OR what Bernanke might do at next week's FOMC meeting to drive long rates lower. So far the Fed's moves have failed to keep rates low as the fed had expected.

Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.


Monday, October 17, 2011


Treasuries and MBS markets opened flat early this morning but got some support at 9:00 as stock indexes softened a little. Helping the bond market some this morning, the Oct NY Empire State manufacturing index expected -4.4 frm -8.82% in Sept was -8.48; the sub components were a little better but still very weak. At 9:15 Sept industrial production reported +0.2% right on the forecasts. Sept capacity utilization also in line, at 77.4% frm 77.3% in August. No initial reaction to the reports.

Europe will continue to draw attention this week, it may not be obvious but under the radar and other driving events Europe is still unsettled. Last week markets were enthused on comments that the EU has com up with a plan that includes banks taking huge hits. Over the weekend the has been some push-back from Europe's banks. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. In the end the situation is still unresolved and is unlikely to be resolved by Oct 23, the so-called date to have it all worked out. The significance is that as long as there is no actual resolution the US interest rate markets and the US equity markets will continue with their volatility.

At 9:30 the DJIA opened -50, the 10 yr +9/32 at 2.22% -3 bps; mortgage prices at 9:30 +4/32 (.12 bp).

This Week's Economic Calendar:
Today;
8:30 am NY Empire State index -8.48 frm -8.82
9:15 am Sept Capacity Utilization 77.4% frm 77.3%
Sept industrial production +0.2%
Tuesday;
8:30 am Sept PPI (+0.2%, ex food and energy +0.1%)
10:00 am Oct NAHB housing mkt index (14, unchanged from Sept)
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Sept CPI (+0.3%, ex food and energy +0.2%)
Sept housing starts and permits( starts +4.0%, permits -1.5%)
2:00 pm Fed's Beige Book
Thursday;
8:30 am weekly jobless claims (unch at 404K)
10:00 am Sept existing home sales (-1.8%)
Oct Philly Feed business index (-9.6 frm -17.5)
Sept leading economic indicators (+0.3%)

Treasury 10-year notes better, pushing yields down from the highest level in seven weeks, as concern Europe may take longer to contain sovereign debt turmoil boosted demand for the safest assets. We still believe the 10 yr note yield won't increase past 2.30%; the high in the recent increase has been 2.27%. With continued concerns over how, or if, Europe can solve its debt issues US markets will continue to trade in swings on each comment out of the region. Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit.

Although there is no way Europe can meet the Oct 23rd target that had been thought, markets still believe some kind of resolution, foreign investors in US bond markets are selling on that belief. The Federal Reserve reported its holdings of U.S. government debt on behalf of central bankers and institutional investors outside America has plunged $76.5B in the last seven weeks, the most since August 2007. At the same time, bond mutual funds are adding Treasuries, banks have increased their holdings 45% in the past five years and the Fed has added $656B to its balance sheet this year.
Technically the 10 yr note and MBSs are bearish at the moment.

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Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Friday, September 30, 2011


In this world of uncertainty and confusion we have been subject to wild gyrations in equity markets that have influenced daily trading in the bond and mortgage markets. Yesterday the DJIA closed up 143, this morning in futures trading the index at 9:00 was down 130. Yesterday mortgages closed better by .12 bp and up .25 bp frm 9:30; the 10 yr traded slightly over 2.00% most of the day but managed to fall back and close at 2.00% a very key level. This morning at 9:00 the 10 yield traded at 1.94% with mortgage prices +.31 bp frm yesterday's close. Rate markets have been tied into a very narrow range this week; conflicting news out of Europe and choppy stock markets keeping interest rates generally higher from last Friday's closes.

At 8:30 August personal income expected up 0.1% fell 0.1%, spending was expected 0.2%, it hit at 0.2%. July income revised to +0.1% frm 0.3% originally reported, spending in July revised from +0.8% to +0.7%. Treasuries and mortgages got a further bounce on the weaker income levels while the stock indexes declined further.

Most recent data on the US and global economies is declining and looking like the US and the world will fall back into recession, or for those like us that have never believed we came out of recession, a double dip. Even though data is confirming the decline there are more optimists that believe these are buying opportunities with good bargains. On the Street the mantra is never admit pessimism even in the face of reality, that was evident in 2008 and the sub-prime bubble. Chinese manufacturing shrank for a third month, the longest contraction since 2009. German sales fell the most in more than four years, while European inflation unexpectedly quickened to the fastest in almost three years this month. Industrial production in Japan grew less than economists had forecast. Concern that Europe’s sovereign-debt crisis will spread and the U.S. economic recovery is faltering has wiped out more than $9 trillion of value from global equities this quarter.

In Germany the upper house of parliament approved the enhanced fund today after the lower house voted 523 in favor and 85 against. Lawmakers approved giving the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. At the moment it looks increasingly like Greece will dodge the inevitable bullet on Oct 13th and avoid what will eventually end in default and restructuring Greece's banks. In less than 2 weeks (Oct 13th) Greece will default unless it gets the funds to get by; it will get the money it needs but it won't change much for Greece and the EU sovereign debt problems.

At 9:30 the DJIA opened -92, the 10 yr note +27/32 to 1.91% -9 bp. Mortgage prices +16/32 (.50 bp) frm yesterday's close.

At 9:45 Sept Chicago purchasing managers' index, expected at 54.0 jumped to 60.4 frm 56.5 in August. New orders component at 65.3 frm 56.9, employment at 606 frm 52.1 and prices pd at 62.3 frm 68.6. The data much better but there was no improvement in the stock market and the rate markets held their gains prior to the report. Any index over 50 is considered expansion, the higher the stronger.

Finally today, at 9:55 the U. of Michigan consumer sentiment index, expected at 57.5 was better at 59.4; current conditions 74.9 frm 74.5, expectations at 49.4 frm 47.0 and the 12 month outlook at 39 frm 38. Treasuries and mortgages slipped slighty on the better data and a stronger Chicago PM index.

The volatility in the equity markets show little chance it will decline any time soon. Many reasons and extruded rational explanations; Europe's debt mess, US fiscal stand-off with our political system, and a housing sector still in deep depression----and the list goes on. For all of the talk and ink on what is happening, the reality is investors and consumers get it more than any other entity, politician or Wall Street gurus. There is no end in sight for this choppy highly volatile condition.

Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Wednesday, September 28, 2011


A slightly weaker open this morning for bonds and mortgages with the key stock indexes pointing to a higher open at 9:30. Europe still holds markets by the throat; will Greece meet the terms outlined to avoid default? Experts from the European Commission, European Central Bank and International Monetary Fund will return to Athens tomorrow as officials race to put in place a package of measures that will save Greece. Euro-area finance ministers will hold an extra meeting on Greece in October amid international concerns that a default could plunge the global economy into recession.

There is reason to believe that Greece will avoid default, at least based on the rallies in equity markets around the world in the last few days. It isn't official and there are still a lot of hurdles to leap; German banks continue to object to further write downs on their Greek debt, banks and insurance companies might have to increase their contribution to the rescue package as Greece’s economy has deteriorated, Greek bonds have tumbled in recent weeks and credit insurance has soared, putting the chance of default at more than 90%. Meanwhile the European Commission refuted reports that euro-area nations are pushing for private Greek bondholders to accept larger writedowns. And the beat goes on, in over a year now the EU and ECB have been unable to create a plan to avoid sovereign debt defaults in Greece and other struggling economies. There is increasing comments from various experts that Greece will eventually default, while European officials and the IMF stand by their work that will avoid default. At the moment markets are believing a deal will get done soon.

August durable goods orders were about what was expected, down 0.1% overall and -0.1% when transportation orders are extracted. Not strong but about what was thought after durables jumped 4.1% in July.

At 9:30 the DJIA opened +65, the 10 yr note -4/32 at 1.99% and mortgage prices were down 4/32 (.12 bp).

The MBA weekly mortgage applications were strong last week; the composite index jumped 9.3% driven by re-financing as interest rates fell on the FOMC policy statement that the Fed would increase buying of MBSs and buy more treasuries at the long end of the curve while selling shorter maturities. The refinancing index jumped 11.2% in the September 23 week while the purchase index rose 2.1%. The rise in purchase applications was due to a 4.9% rise in conventional purchase applications that offset a 0.6% decline in applications for government loans which MBA tied to the pending decline in FHA loan limits. The purchase index has been on the rise in recent weeks and the gains hint at welcome strength in tomorrow's pending home sales report. The average rate for 30-year mortgages with conforming loans ($417,500 or less) fell four basis points in the week to 4.25% with the jumbo loans ($417,500 or more) also falling four basis points to 4.51%. FHA 30-year loans fell two basis points to 4.05%.

At 1:00 Treasury will auction $35B of 5 yr notes; yesterday's 2 yr note auction met with very good demand, expectations are that the 5 yr will also see strong demand.

The bellwether 10 yr note is working on 2.00%, it held yesterday on the close and so far this morning sits at 1.99%. 2.00% is our first support, if it falls a number of our technical models will change to a more negative outlook. If that were to occur, given the Fed's support for the long end, rates are not likely to increase much. That said, the uncertainty of the outlook is high; the economic outlook, Europe's debt mess---neither is given in the outlook.

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.


Thursday, September 22, 2011


Yesterday 30 yr mortgages had one of its best days in over a year; the 3.5 Oct MBS increased 41/32 (1.28 bp). The Fed did what markets were expecting plus more. The view prior to the FOMC policy statement at 2:22 yesterday was that the Fed would institute "Operation Twist" as it has been tabbed, selling shorter dated notes and replacing them with longer term notes and bonds to drive down long term rates. The amount of shifting was expected to be about $300B, the Fed said it will be $400B. There was not much consideration in markets about anything directly impacting the mortgage markets; the Fed however surprised markets with the announcement it would turn back to buying MBSs with principle pay downs on MBSs it holds and instead of investing back into treasuries as it had been doing, investing in more MBSs. The reaction was swift in the mortgage market as MBSs out ran the 10 yr note by a mile. MBSs gained 1.28 basis points while the 10 yr gained just 24/32 (.75 bp).

This morning in early activity had mortgage prices up as much as 22/32 (.69 bp) frm yesterday's closes (8:00 am). At 9:00 +16/32 (.50 bp); at 9:30 MBSs +18/32 (.56 bp). The 10 yr at 9:30 +24/32 at 1.78%-8 bp. The DJIA opened -192, NASDAQ -72 and the S&P -21.

The equity markets took a huge hit yesterday, in futures trading early this morning the DJIA traded down 277 at 9:00. All European markets were hit hard this morning on the Fed's statement, weaker economic reports and the continued difficulty in getting anything accomplished with Greece's debt mess. Euro-area services and manufacturing output shrank for the first time in more than two years in September as the region’s worsening debt crisis added to concerns that the economy could slide back into a recession. German bonds rose, with 10- and 30- year yields dropping to record lows, as speculation the world economy is headed for another recession increased demand for safer securities. And it isn't just Europe and the US; a preliminary index of China purchasing managers was 49.4 this month, a reading below 50 indicates contraction.

Most of the headlines from the FOMC meeting were focused on the confirmation that the Fed would move out the curve with its balance sheet to push long term rates down. It didn't escape markets though that the FOMC lowered its economic outlook from previous meetings. In the statement the Fed said "Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets". The addition of the word significant was inserted from previous statements, confirming the Fed is becoming more fearful of falling back into recession.

Weekly jobless claims this morning were down 9K to 423K, last week's claims were revised up frm 428K to 432K. Continuing claims continue to decline, 3.727 mil frm 3.755 mil last week. At 10:00 the FHFA July price index increased 0.8% for the month, yr.yr prices are down 3.3%. August leading economic indicators at 10:00 +0.3%, better than +0.1% expected. No reaction to the two 10:00 data points.

It is a good last 24 hours for the bond and mortgage market; a serious whipping for stocks. These kinds of moves usually lead to increased volatility; we expect to see wide swings in the bond and stock markets over the next week. Attempting to anticipate how much lower interest rates can go is difficult and we won't even try now until markets settle down. Europe's problems and the Fed's lowering its outlook for economic growth will continue to play out. This week doesn't have much economic data, next week there isn't a lot either. Next week Treasury will auction about $99B of 2s, 5s and 7 yr notes.

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Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Friday, September 16, 2011


Treasuries and mortgages being hit again this morning; the 10 yr note again testing its 20 day average, an average that works well for near term changes in direction. So far the 10 has found support at its 20, at 9:15 this morning the average is at 2.09% with the note trading at 2.11%. Mortgage prices at 9:15 -8/32 (.25 bp) and below its 20 day average; hart support for 20 yr MBSs is at 100-09/32, presently at 100-25/32.

In the last couple of days news out of Europe, while not close to definitive on the debt crisis with Greece and other countries struggling with default, has been somewhat more encouraging. Geithner saying there is absolutely no way Europe will suffer a Lehman event that about took down the US financial system. Germany re-affirming it will not let Greece be pushed out of the EU. Merkel, Germany's Chancellor, expanded her defense of the euro, saying Germany has a “duty” to preserve the joint currency because it helps exports, makes the country richer and underpins Europe. “The euro has proven itself, it’s good for us as an export nation” and has increased growth and prosperity in Europe’s biggest economy, Merkel said in a speech in Berlin today. “That is why it is our duty, very much in our own interest, to make our contribution to secure the euro’s future. Everything that serves the goal of securing the euro’s future must be done.” It appears Greece will dodge its next bullet with additional money to fend off default; euro-region ministers are meeting in Poland today over collateral to backstop Greece’s rescue loans as the country’s next 109 billion-euro ($151 billion) financial aid package hangs in the balance.

The debt mess in Europe is nowhere near any significant resolution or definitive plans to restructure debt in Greece, Portugal or Ireland---and Spain and Italy. There have been countless times over the last year where it was thought Europe was getting its act together, only to be dashed on the rocks of disappointment. This time is no different; there has been a huge amount of speeches and talks that all sound encouraging only to end in derision and nothing accomplished.

As long as traders believe there is a chance of dealing with Europe's banks the safety move to US treasuries lessens. Yesterday and today that is what we are seeing in the bond market, taking some of the risk trade off. Whether it will change the wider direction of interest rates is not clear; that said, taking the 10 yr note below 2.00% and sustaining it is not going to be an easy move. Although the 10 has fallen below 2.00% it hasn't held and selling quickly pushed the yield back up.

The US bond and mortgage markets still holding but weakening recently; we expect continued volatility but now with an upside bias for interest rates. It all will change however if the outlook over Europe changes. IN the end it is a touchy and uncertain environment on the rate markets now.

At 9:30 the DJIA opened +52 in a background of uncertainty. The 10 yr at 2.11% +2 bp and mortgage prices at 9:30 -8/32 (.25 bp) on 30s.

At 9:55 the only data today, the U. of Michigan consumer sentiment index. At the end of August the index was a weak 55.6, it was expected at 56.3; as reported the index was better at 57.8; the current conditions index at 74.5 up frm 68.7 in August, the expectations index at 47.0 frm 47.4, and the 12 month outlook index at 38 frm 40 in August----the expectations index is the lowest since Feb 2009. The initial reaction improved the 10 yr a little but not much. Overall the report wasn't good but so far not much reaction to it in the equity or bond markets.

Next Tuesday and Wednesday the FOMC meeting; likely the bond and mortgage markets won't change much until the statement on policy is released Wednesday afternoon. Still a lot of thinking the Fed will start another easing move of some sort. It isn't clear what the Fed may do, or whether it has anymore bullets left to help the economy. That said, the Fed does have the ability to push interest rates at the long end of the curve lower.

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Thursday, September 15, 2011


At 8:45. Is there something different taking hold of the US bond and mortgage markets? For months interest rates have declined as various economic reports confirmed the slowing of the economy, for months the stock index would take a hit on any weak economic releases. This morning at 8:30 three data points weaker than estimates; weekly jobless claims, the NY Empire State manufacturing index, and August CPI showing increased inflation, the bond and mortgage markets didn't budge from pre 8:30 levels and actually declined in price.

Weekly claims were widely expected to decline 2K to 412K, as reported claims increased 14K to 428K. The NY Empire State manufacturing index was forecast to have declined to -3.6, up from -7.7 in August; it increased to -8.8, the new orders component at -8.0 frm -7.82, employment component at -5.43 frm +3.26 and the prices pd index at 32.61 frm 28.26 (an index lower than zero is contraction). In months prior the two reports would have supported the bond market, not so this morning. August consumer price index jumped 0.4%, twice what had been expected, the core (ex food and energy) up 0.2%; yr/yr overall CPI +3.8% and yr/yr on the core at +2.0%. The 10 yr note prior to the 8:30 reports was down 11/32, at 9:00 down 30/32 at 2.09% +10 bp, mortgages -18/32 (.56 bp). Prior to the 8:30 data the DJIA was up 65, at 9:00 +14.

Its 9:20 am. Two more reports; August industrial production and capacity utilization. Production was expected up 0.1%, capacity use at 77.5% unchanged from July; as reported production up 0.2% and capacity utilization at 77.4% frm July's revised 77.3% frm 77.5% originally reported. Treasuries and mortgages didn't move on the data but both were substantially weaker already.

At 9:30 the stock market opened strong, the DJIA up 90, the 10 yr note at 2.09% +10 bp and mortgage prices -13/32 (.41 bp). A few minutes before 9:30 mortgage prices traded down as much as 17/32 (.53 bp).

At 10:00 another very key report; the Sept Philly Fed business index, expected at -15.0 frm -30.7 in August (the lowest since March 2009) fell to -17.5; still indicating contraction but a little less than in August. The sub-components were better though; new orders at -11.3 frm -26.8, employment went positive to 5.8 frm -5.2 and prices increased to 23.2 frm 12.8. The initial reaction in the bond market was muted---already very weak, the stock indexes saw a little improvement. The increase in prices is troublesome along with the increase the overall CPI early this morning.

Higher claims, weaker NY Empire State, a little less factory use and a weak Philly Fed report along with the news out of Europe recently may be changing the outlook for interest rates near term; that said, one day isn't a trend, the next day or two traders will be quick to react with more selling unless the 10 yr can hold at 2.10%.

The overriding news this morning is a carry over from yesterday's comments on Europe that Greece would not be kicked out of the EU because of the potential default and Treasury Sec Geithner saying there is no chance that Europe's debt problems would lead to what happened when Lehman failed in 2008. Markets took the comments as a positive that Europe would dodge a crisis, one of the key components for historic low US interest rates. This morning the ECB said that, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, it will conduct three U.S. dollar liquidity-providing operations with a maturity of approximately three months. The loans are in addition to the bank’s regular seven-day dollar offerings and will be conducted as fixed-rate tenders with full allotment, the ECB said in a statement. Providing more dollars to Europe's banks and longer terms is an effort to assure the banks will stay solvent as the debt crisis continues to unfold.

The key 10 yr note at 2.10% is at our support area and must hold there; if not the 10 may run up to 2.30% if problems in Europe appear to be easing. Still a very volatile situation but if markets believe there is actual progress being made the safe haven trade into US treasuries will wane and push rates up a little. At 2.10% the 10 is slightly above its 20 day average and mortgage prices slightly below their 20 day average; markets have tested the averages recently but each time the 20 day has held. Be careful now and stay close.

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.

Tuesday, September 13, 2011


A quiet but little weaker start this morning; the 10 yr-2/32 and mortgage prices -.06 bp at 9:00. At 8:30 August import prices declined -0.4% against forecasts of -0.8%; export prices +0.5% against unchanged expected; no reaction to the data as usual. Today has no real data to look at; at 1:00 Treasury will auction $21B of 10 yr notes re-opening the 10 yr issued in August. Yesterday's $32B of 3 yr notes was mediocre, not bad but no strong demand for 3 yr yield at 0.334%. At 2:00 this afternoon Treasury will report the August budget deficit at -$132B.

Markets in the US still being driven by lack of events with Europe's debt mess. In early Europe activity this morning there was a report that France and Germany were about to make a statement on Greece's debt, later the French government said that wasn't the case, there is no announcement. Europe's stocks turned lower. German Chancellor Merkel said overnight she won’t let Greece go into an “uncontrolled insolvency” because of the risk of contagion for other countries. Italy sold 3.9 billion euros ($5.3B) of a new five-year benchmark bond as borrowing costs rose and demand fell. A government official said yesterday the nation held talks with China about potential investments in the euro area’s third- largest economy. The rate was 5.6%, compared with 4.93% at the previous auction and demand was 1.28 times the amount on offer, down from 1.93 times earlier.

The National Federation of Independent Business’s optimism index decreased to 88.1, the weakest reading since July 2010 and the sixth-consecutive decline, from 89.9 in July. The number of small-business owners saying they expected the economy will improve six months from now fell to the lowest level since 1980. Six of the index’s 10 components decreased. The gauge of expectations for better business conditions six months from now led the decline, falling 11 points to a net minus 26 percent in August. The drop brought business assessment of the economy to the lowest level since the second quarter of 1980, when the measure fell to minus 37, according to Dunkelberg. Based on the NFIB report today Obama's jobs bill isn't going to light a fire under small businesses where most all new jobs come from.

Obama's jobs bill, if passed, does not appear to add permanent jobs to the work force or encourage businesses to hire workers. Most of the jobs that would be created in his plan would be teachers, state union workers and construction workers for the "shovel ready" jobs. Shovel ready didn't add many jobs with the first stimulus and likely won't do so this time; as for teachers, a good idea but after the initial subsidy to pay them, who will continue to pay their salaries? Based on the markets' reactions since last Thursday evening, there isn't much enthusiasm for his plan so far.

At 9:30 the DJIA opened -10, the 10 yr note ahead of this afternoon's auction -4/32 at 1.96% +1 bp and mortgage prices -2/32 (.06 bp) on 30s, -6/32 (.18 bp) on FHAs.

By 10:00 the rate markets were weaker than when most lenders priced; the 10 yr note yield up to 1.98% and mortgage prices -4/32 (.12 bp). The stock market is essentially unchanged; nothing of substance out of Europe debt crisis, the main issue driving US equities and bond markets. This afternoon Treasury will sell $21B of 10 yr notes, likely will keep treasuries from improving much unless the stock market declines. Technically the bond market is approaching overbought readings on the momentum oscillators. No reason to become bearish in the bond market unless Europe finds a way out of the current debt crisis.

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.


Wednesday, August 17, 2011


Yesterday the bond and mortgage markets improved, the stock market declined; on Monday the bond and mortgage markets declined while the stock market rallied. This morning markets continue their now almost predictable moves; since yesterday was a down day for stocks, today is likely an up day and will keep mortgage prices lower. It is becoming a trend; whatever markets do one day, the next day will be the opposite. Meanwhile mortgage lenders continue to set prices that don't always follow the actual market to control flow. Some lenders appear to be unable to keep up with the increased volume and price defensively.

July producer price index at 8:30 was a little stronger than expected; overall PPI increased 0.2% but the core, ex food and energy expected up 0.2% increased 0.4%, Yr/yr overall PPI +7.2% and yr/yr core +2.5%. Treasuries and mortgage markets didn't show any reaction to the hotter inflation core rate. With the US and global economies sluggish there is little concern that inflation will take hold. I am somewhat surprised that the bond market didn't react to the increase on the core inflation rate at 2.5% yr/yr, that is the level of the Fed's target range for the core.

European stocks are little changed, paring earlier losses after German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday rejected an expansion of the region’s rescue fund and rebuffed calls for joint euro borrowing. Asian shares and U.S. index futures are doing a little better this morning in pre-market trading, at 9:00 the DJIA was up 22 points but had backed off better levels seen at 8:00 am.

At 9:30 the DJIA opened +34, the 10 yr note +1/32 at 2.22% and mortgage prices +2/32 (.06 bp) frm yesterday's close. At 9:15 mortgage prices were down 1.32 (.03 bp). By 10:00 stock indexes are moving higher (+91 on the DJIA), the 10 yr note -4/32 and mortgage prices +1/32 (.03 bp).

At 7:00 this morning the weekly MBA mortgage applications. The ongoing drop in interest rates is driving refinancing demand higher but, unfortunately, has yet to drive up demand for home purchases. The refinancing index extended its run of jumps in the August 12 week with an 8.0% gain after a 30% increase last week. The purchase index continues to show weakness, down a very steep 9.1%. The rate for 30-year mortgages fell five basis points in the week to 4.32% with the 15-year rate also down five basis points, to 3.47%; a new low rate. Consumers still not stepping up to buy, very low prices and interest rates have yet to show and positive impact in the housing sector. After the Washington clown act over the debt ceiling and spending cuts, consumer sentiment took a dip. Job insecurity continues, debt deleveraging by consumers is continuing.

Pres Obama will make a Labor Day speech calling on Congress for more money to increase employment. The president also will call for long-term cuts beyond the $1.5 trillion that Congress charged a 12-member bipartisan “super- committee” of lawmakers to trim. His plan will likely have a mix of tax cuts and infrastructure spending and will include proposals beyond the ideas that he has mentioned on his current Midwest bus tour, such as extending a payroll tax cut for workers and unemployment insurance benefits. In addition to tax cuts and infrastructure spending, Obama will offer proposals targeted for the long-term unemployed. The dollar amount of the additional long-term deficit reduction measures will exceed the cost of the new short-term spending that he will propose. On his bus tour the president outlined a number of measures that he wants Congress to approve, including renewing a payroll tax cut for workers, revamping the patent process, approving free-trade deals and setting up a so-called infrastructure bank to help fund construction projects such as road-building.

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com




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Monday, August 15, 2011


Prior to 8:30 treasuries and mortgages were a little weaker in price. At 8:30 the first data point this week, the NY Fed Empire State manufacturing index was expected to have declined to -0.4, as reported it fell to -7.72 frm -3.76 in July (any read under zero is considered contraction). New orders component fell to -7.82 frm -5.45, employment at 3.26 frm 1.11, and prices at 28.26 frm 43.33. The report didn't generate much reaction but kept interest rates in check until the stock market opened at 9:30. At 9:00 the DJIA index traded +41.

At 9:30 the DJIA opened +110, the 10 yr note unchanged at 2.26% while mortgage prices at 9:30 were soft; down 4/32 (.12 bp) on 30 yr conventionals and -11/32 (.34 bp) on 30 FHAs.

At 10:00 the August housing market index from NAHB, expected unchanged at 15, as reported 15; single family home sales index at 16, up from 15 in July. Treasuries and mortgages at 10:00 were losing ground from levels at 9:30. Mtgs at 10:00 -8/32 (.25 bp), the 10 yr at 10:00 -5/32.

Last Thursday and Friday the stock indexes closed better, it has been rare that the indexes improved on two successive days. This morning the stock market has opened better, talk will focus on possible 3 days in a row. The outlook for the economy is likely more pessimistic than it should be but in this panicky environment not many are thinking clearly. The economic outlook isn't what it was two months ago with report after report on the economy weaker than estimates. Mix in the still shocking statement from the Fed last Tuesday that it would keep the Fed funds rate at current levels for two more years; the take away is that the Fed now believes the US and global economies will not improve much and unemployment will stay at recession high levels.

This Week should continue to see increased volatility in the financial markets as investors and traders sift through the ever changing economic outlook. Last week didn't have much in the way of key data points, this week we have a lot of economic food to digest. The bond and mortgage markets remain technically overbought but in this present environment of high volatility and moving to safety the bond market will likely continue to hold low rates, however not quite as low as it was last week. It all depends on the data this week. Expect to hear more about the possibility of another Fed easing (QE 3); whether or not the Fed goes back to purchasing treasuries or MBSs or anything else, it won't likely have any impact on improving the economy or job growth. This week expect another week of interday market volatility. The bond and mortgage markets will continue to move in tandem with stock indexes; better stock market lower prices in mortgages and treasuries.

This week's Economic Calendar:
Monday;
8:30 August Empire State manufacturing index (as reported -7.72 frm -3.76 in July)
10:00 Aug NAHB housing mkt index (expected at 15, as reported
Tuesday;
8:30 am July housing starts (-3.5%)
July building permits (-3.0%)
July export prices
July import prices
9:15 am July industrial production (+0.4%)
July capacity utilization (77.0% frm 76.7% in June)
Wednesday;
7:00 am Weekly MBA mortgage applications
8:30 am July producer price index (0.0% frm -0.4% in June; ex food and energy +0.2%)
Thursday;
8:30 am weekly jobless claims (+5K to 400K; continues claims 3.698 mil frm 3.688 mil)
July consumer price index (+0.2%, ex food and energy +0.2%)
10:00 am July existing home sales (+2.0% at 4.87 mil)
August Philadelphia Fed business index (+1.0 frm +3.20 in July)
July leading economic indicators (+0.2%)

Japan’s economy shrank at an annualized 1.3% rate in the second quarter, compared with the median forecast for a 2.5% drop. Oil traded near its highest in a week as advancing U.S. equity futures and better-than-forecast economic data from Japan allayed concerns that the global recovery has faded. When is bad news good news? These days with markets increasingly worried about a double dip recessions any report that beats estimates is reason for a sigh of relief.

Yields are little changed across Europe as markets take a wait and see approach ahead of tomorrow's crisis management meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel. The little change is somewhat of a surprise as initial reports are suggesting that both France and Germany have ruled out a common Euro zone bond. German Bunds and UK Gilts are seeing some light buying with German yields lower by as much as 5 bps and Gilts off 1 to 2 bps. The 10-yr Bund is now yielding 2.322% while the 10-yr Gilt is near 2.520%.

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Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



Building Strong, Lasting Relationships; One Client at a Time.


Wednesday, August 10, 2011


Volatility continues to describe the financial markets; this morning in early activity the stock index futures pointing to a down open, treasuries and mortgages continue to improve. Yesterday the Fed shocked markets by actually setting a long term time frame to keep the FF rate at current levels, saying the Fed would hold until mid-2013. I can't recall anytime where the Fed did that; generally the Fed uses more ambiguous language like "extended period of time" to signal its intentions; leaving markets to determine what that meant.

The reaction to the statement at 2:15 yesterday sent the stock indexes higher and took interest rates to lows not seen since Dec 2008; the 10 yr at one point hit 2.03% before backing up to close at 2.27% down 6 bp. Mortgage prices climbed and held gains, up 1.03 bp on 30 yr Fannies. Early this morning (9:00) mortgage prices up 15/32 (.47 bp), the 10 yr note +29/32 at 2.17% -10 bp.

At 9:30 the DJIA opened -200, the 10 yr note +33/32 at 2.16% -11 bp. Mortgages are on fire, up 21/32 (.6 bp) after climbing 1.03 bp yesterday. The spread between MBSs and treasuries is narrowing on the Fed decision yesterday, investors can increase returns over treasuries by moving to MBSs. The swift decline in mortgage rates will set off another re-finance market; the lower mortgage rates are the lower the risk for investors, so MBSs at the moment are very attractive.

Various opinions yesterday and this morning trying to handicap the Fed's surprise yesterday. The obvious is that the Fed now does not expect any real improvement in the economy for a year or more. The Fed did however, say it would continue to monitor markets and would, if the economy actually grows and unemployment declines, be quick to signal a change in thinking. Telling markets the FF rate would stay at present levels for two years implies the economy isn't likely to improve much and inflation will not increase. The FOMC vote was not unanimous though; there were three members that voted against the decision; suggesting the Fed is becoming increasingly divided in its outlook and decisions on monetary policy.

Our take on the Fed's decision yesterday; the Fed is essentially out of bullets that they believe will help revive the economy and lower unemployment. There are however a number of analysts believing the Fed will do another easing later this year; whether it does or doesn't any easing won't help the economy. I believe what Bernanke did is to assure investors rates will stay low and that putting money in treasuries won't provide much, if any, return on parking money. Investors will continue to look for any potential to earn some profits, that makes stocks more attractive; not because the economy will drive equities much higher, but equities will at least allow trading opportunities and stocks that pay dividends will provide better returns than treasuries. Bernanke's decision will keep interest rates low and likely keep the stock market from collapsing. We believe equity markets will trade in a very wide range, a wide enough to provide opportunities. That said, the economic outlook at the moment is such that the key indexes have little chance of making new highs but equally won't likely crash. It was a excellent strategic decision by Bernanke.

Continue to expect extreme volatility in both stocks and interest rates over the next week or two. The week ahead will likely see two way trading; up and down with little change but the daily swings are going to be huge compared to norms. Yesterday a prime example, the DJIA had a 600+ range closing up 429 after dropping 634 points Monday, and down 1000+ points since last Thursday before yesterday's gain.

At 10:00 June wholesale inventories, expected +1.0%, were +0.6%; sales also up 0.6%.

At 1:00 Treasury will sell $24B of 10 yr notes; yesterday the 3 yr auction went well, we expect the 10 today will also see strong bidding.

At 2:00 Treasury will report the July budget; a shortfall of $132B is expected.

How low can rates go? Not sure, but it is likely the 10 yr note rate will fall to 2.00%; it could fall further depending on what happens in Europe and the US economic outlook. Right now MBSs are seeing strong buying as investors seek higher yields. Volatility will continue so be prepared for wide swings.

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Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: http://www.equityinvestmentcapital.com/


Building Strong, Lasting Relationships; One Client at a Time.
Monday, May 02, 2011

Early on this morning the bond and mortgage market prices were lower, gold lower and crude oil down; the stock indexes rallying----initial reactions to Osama Bin Laden being killed. At 7:30 the 10 yr note -9/32, crude off $2.50 (at 10:00 up on the day) and gold down $7.50, mortgages opened -5/32 (.15 bp) frm Friday's close. Some safety trades being lifted was the rationale but we doubt there was that much safety concerns over Bin Laden ion the markets. By 9:00 the 10 yr recovered early price declines with mortgages back to unchanged.

Finally Bin Laden is dead, it took almost 10 yrs from 9/11 but in the end we got the murdering bastard. Over that time however there have been many new and dangerous cells develop assuring Islamic terrorists will continue their jihad.

At 9:30 the DJIA opened +60, 10 yr note -3/32 and mortgage prices -1/32 (.03 bp).

This is employment week with April data hitting on Friday. After a day or two the Bin Laden knee jerk affect will cease and markets will return to the economic outlook that isn't looking all that well these days. The stock market shows no signs of backing off after making new three year highs. It has been all about stronger earnings so far, what lies ahead after most companies have scraped every little bit of fat off their balance sheets? Recent earnings reports have been better but revenues are declining. Much of the enthusiasm for equities are predicated on the Fed keeping interest rates low, low rates however are a function of a weakening economic outlook.

At 10:00 two data releases; March construction spending expected unchanged from Feb jumped 1.4% and private construction spending +2.2%; finally some noticeable improvement. The April ISM manufacturing index also better, at 60.4 frm 61.2 but a little better than 59.7 expected. The sub-components, new orders 61.7 frm 63.3, prices pd 85.5 frm 85.0 and employment at 62.7 frm 63.0 in March. Any index over 50 indicates expansion. The initial reaction pushed the price of the 10 lower and mortgage prices down .09 bp frm 9:30 levels.

This Week's Economic Calendar:
        Today;
            10:00 am March construction spending as reported
                           April ISM manufacturing index as reported
            3:00 pm April auto and truck sales (N/A)
        Tuesday;
            10:00 March factory orders (+1.9%)
        Wednesday;
            7:00 am weekly MBA mortgage applications
            8:15 am ADP April private employment (+200K)
            10:00 am Apr ISM services sector index (57.3 unch frm March)
        Thursday;
            8:30 weekly jobless claims (-29K to 400K; con't claims 3.638 mil frm 3.641 mil)
                   Q1 prelim productivity (+1.0%)
                   Q1 unit labor costs (+0.8%)
       Friday;
           8:30 am April BLS employment report (non-farm payrolls +183K, private jobs +200K, unemployment unchanged at 8.8%)
           3:00 pm March consumer credit (+$5.0B)

Lots of talk from Washington that the economic recovery is being held back because banks refuse to lend to businesses thus holding back job growth. U.S. banks are buying Treasuries at the fastest pace in nine months as lenders retreat to the safety of government debt with the economy expanding slower than forecast and loan demand dormant. Commercial banks bought $65B of U.S. debt in the past seven weeks, as their total holdings reached $1.68T, Federal Reserve data show. The purchases were the most since $79.1B in the period ended July 21, just before the recovery began to falter and Fed Chairman Bernanke signaled policy makers would conduct a second round of bond purchases to spur growth. Our friend Bill Dunkelberg, chief economist for the Nat'l Federation of Independent Business makes the case clear: "the real problem is loan demand (confirmed while speaking to bank organizations in half a dozen states over the past year).  Loans have to be repaid, meaning that the money must be used to finance the acquisition of employees or equipment that will “pay back” the loan. Common sense.  But record numbers of owners (as high as 28%) have reported that “weak sales” is their top business problem while only 4% reported “financing” as a top problem (National Federation of Independent Business monthly surveys of its 350,000 member firms).  Ninety-three percent reported all their credit needs met in March, including 53 percent who said they were not even interested in a loan.  No customers means no need for a loan to finance hiring, inventory purchases or expansion (only survival – not a good bank loan!).  But they don’t get it in Washington D.C.  And not understanding the problem produces bad policy, and there has been plenty of that.  If lending is picking up, it is because customers are showing up and there is a reason to invest and hire.  The reverse doesn’t work – you can’t force feed the credit to owners and have more customers suddenly show up (even interest free loans would have to be repaid!).  That’s “pushing on a string”.  Just ask the banks."


The 10 yr note is closing in on 3.25% after climbing to 3.60% less than a month ago, mortgages also seeing a sizeable decline in yields over the past month. Technicals are approaching momentary overbought levels, there is an increasing potential now for some increase in rates and declining prices to consolidate the strong rally. Wider outlook has improved as the economic outlook is less bullish now than a month ago and the Fed committed to keep rates low while it refuses to consider the potential of an increase in inflation. Left alone most traders and analysts would be more concerned but since the Fed isn't concerned why should markets?

Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: http://www.equityinvestmentcapital.com/

Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, April 27, 2011

A little weaker this morning in the rate markets; not really unexpected after the recent improvement in rates and ahead of an historic day with the chairman of the Fed holding a press conference for the first time ever. The FOMC meeting will conclude at 12:30 with its usual short policy statement, then at 2:15 Bernanke will hold a 45 minute press conference to answer questions. It is huge step for the Fed to open the chairman to the media, it also could be just another event that fails to meet expectations. If Bernanke doesn't allow follow up questions then he can waltz through the press conference without breaking a sweat and continue to let markets swing in the wind.

At 9:00 this morning the 10 yr note -12/32 at 3.35% after closing at 3.31% yesterday; mortgage prices off 6/32 (.18 bb), the stock indexes continue to improve as Q1 earnings generally beat estimates. At 9:30 the DJIA opened +11 then immediately retreated to unchanged, the 10 yr at 9:30 -12/32 and mortgages -6/32 (.18 bp).

At 8:30 March durable goods orders expected up 2.0% increased 2.5%, when the volatile transportation orders are ignored durables were up in line with estimates 1.3%; no reaction to the report as everything this morning is completely dependent on the FOMC policy statement and Bernanke's press conference.

Mortgage applications decreased 5.6% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 22.  There was no adjustment made for Good Friday. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.6% on a seasonally adjusted basis from one week earlier.  The Refinance Index decreased 0.6% from the previous week.  The seasonally adjusted Purchase Index decreased 13.6% to its lowest level since February 25, 2011, driven by a 26.6% decrease in government purchase applications.  The four week moving average for the seasonally adjusted Market Index is down 2.4%.  The four week moving average is down 0.8% for the seasonally adjusted Purchase Index, while this average is down 3.2% for the Refinance Index. The refinance share of mortgage activity increased to 61.6% of total applications from 58.5% the previous week. This is the highest refinance share of the month. The adjustable-rate mortgage (ARM) share of activity remained unchanged from the previous week at 6.5% of total applications. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.80% from 4.83%, with points decreasing to 1.01 from 1.06 (including the origination fee) for 80% loans.  The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03% from 4.07%, with points decreasing to 0.96 from 1.02 (including the origination fee) for 80% loans.

At 11:30 this morning Treasury will auction $35B of 5 yr notes; normally at 1:00 but with the FOMC policy statement at 12:30 Treasury moved the auction to 11:30.  Yesterday the 2 yr note auction wasn't as good as we would have liked but until the press conference is done this afternoon nothing is likely to move traders and investors. Another soft auction will be dealt with after the press conference is debated. As noted above, if no follow up questions are allowed the conference will be seen as just another sound bite.