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.


Wednesday, September 21, 2011


Tedious open this morning; the rate markets flat and the early action in the stock index trade had the indexes about unchanged. The bond and mortgage markets tried to hold slight gains but at 9:00 were slipping. The mortgage market continues to look weaker than treasuries, that has been the case for a week now. FHFA swinging a big axe, adding fees and suing every company it can is causing lenders to price defensively, not pricing to the MBS market but pricing lower.

Today is all about the Fed and what the FOMC policy statement will say regarding another potential Fed easing move. Known as "Operation Twist", many are expecting the Fed to announce it will begin selling its short dated notes while increasing purchases of 5s, 10s and 30s. Until 2:15 markets are likely to be generally unchanged. Not sure whether or not Operation Twist has been built into present yields at the long end (10s and MBSs); markets not even sure what the Fed will say in the policy statement. This afternoon after the 2:15 announcement markets will likely be volatile.

The soap opera known as the Greek bailout continues with nothing accomplished----again. Officials said they need to return to Greece to complete a review of the economy, for two days the IMF and EU people have been meeting with Greece leaders yet still haven't determined whether Greece has met the austerity plans that were a condition for getting more financial assistance to avoid default. Meanwhile Europe's economy is slipping quickly and the US markets are held captive to every syllable coming from the EU, IMF and Greek political leaders.

Weekly Mortgage Applications Survey for the week ending September 16, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 0.6% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 2.2% from the previous week. The seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The four week moving average for the seasonally adjusted Market Index is down 3.15%. The four week moving average is down 0.54% for the seasonally adjusted Purchase Index, while this average is down 3.91% for the Refinance Index. The refinance share of mortgage activity increased to 78.3% of total applications from 76.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.7% from 7.3% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 4.29%, with points increasing to 0.41 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (> $417,500) decreased to 4.55% from 4.57%, with points increasing to 0.46 from 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.07% from 4.08%, with points increasing to 0.51 from 0.48 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.46% from 3.52%, with points increasing to 0.45 from 0.38 (including the origination fee) for 80% loans.

At 9:30 the DJIA opened a little weaker but quickly turned slightly positive; the bond and mortgage markets marching to what the equity markets do; the two markets remained tied together as traders have almost total control of both markets these days. Normal type investors are not investing much. It has become one of the easiest trades these days; stock indexes weaker, buy the 10 yr, stock indexes better sell the 10 yr-----and vice versa.

The only data today; at 10:00 August existing home sales, expected up 1.4%, increased 7.7% to 5.03 mil. The median sales price $168,300 -5.1% frm August 2010, 31% of the sales were distressed sales, based on sales in August there is an 8.5 month supply, the inventory level declined 3.0%. No reaction to the data in the bond and mortgage markets, but the stock indexes did improve on the better sales.

US financial markets will likely stay generally flat until 2:15 when the FOMC policy statement is released. Based on what the statement says markets will likely be somewhat volatile after that.

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 20, 2011


The back and forth pattern that characterizes the US financial markets continues today; after a strong rally yesterday in the bond and mortgage markets this morning both markets started weaker. Ditto for the equity markets, down yesterday and up this morning. The every other day direction is so predictable these days, it can be traded with little concern by day traders that are currently dominating markets.

At 8:30 August housing starts, expected down 2.4% to 590K, declined 5.0% to 571K. August building permits expected down 2.0% to 585K were up 3.2% to 620K. Not much reaction to the data; these days US economic data is a second tier concern with markets completely and totally fixated on every word coming out of Europe over Greece's debt issues. Europe continues to grapple with a solution for debt insolvent countries; Greece, Portugal and Ireland and the bigger economies of Spain and Ireland.

Greece held “productive” discussions with European officials yesterday about the country’s bailout. The government will hold another call today as European leaders squabble over the terms of a July agreement and the prospect that they will be forced to channel more money to keep Greece in the currency union. The IMF said that the program carried out by the government had produced “impressive fiscal consolidation,” while the EU in Brussels yesterday that the European Commission has not demanded more of Greece than was agreed to in the international aid program for the country.

The IMF said the global economies are in a dangerous situation with another recession increasingly likely. German investor confidence fell less in September than analysts had estimated. Its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 43.3 from minus 37.6 in August. Economists had projected a drop to minus 45, according to the median of 37 estimates in a Bloomberg News survey.

S&P, as expected, downgraded Italy's debt to A frm A+, saying slower growth and a “fragile” government may derail the nation’s ability to reduce its debt burden. Portugal’s 10-year yield rose by the most in two weeks.

The FOMC meeting gets started today, a two day affair leading to tomorrow's policy statement and belief the Fed will officially announce "Operation Twist" as it is being dubbed. Many now are confident the Fed will act; if it doesn't the long end of the curve (10s and 30s as well as mortgage markets) will likely be hit hard. The Fed will decide to replace short-term treasuries in its $1.65 trillion portfolio with long- term bonds, according to 71% of 42 surveyed economists. The move, is to bend the yield curve, will probably fail to reduce the 9.1% unemployment rate, 61% of the economists said. Among those, 15% predict it will be “somewhat harmful.”

Looking over the wires this morning it appears there is little in the way of understanding what "Operation Twist" will do for the economy. Stories hitting that the stock indexes are better this morning on belief the Fed's expected move will help the economy. Wed don't subscribe to that thinking; lower long term interest rates that are supposed to go lower on the Fed move will have little if any impact on unemployment, will not likely motivate small businesses to spend or hire, and won't do much for the housing sector. Banks are scared to death to lend with regulators stepping down on them with more red tape and not understandable regulations. The we have the FHFA launching law suits against the large mortgage lenders demanding re-payment of as much as $800B for what FHFA is saying were faulty loans; and telling Fannie and Freddie to increase fees by as much as 10 basis points. Washington continues to be unable to get out of its own way, suing banks so late in the game is counter-productive and sends a message that lenders are at risk for anything they do and hindsight will be the way bureaucrats will do things; is it any wonder banks won't lend?

The MBS markets are dragging today; at 9:50 the 10 yr note had recovered its earlier price declines and traded up 5/32 at 1.94% -1 bp while mortgage prices at 9:50 -6/32 (.18 bp). The stock indexes opened a little better at 9:30 but at 10:00 were weakening.

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.

Monday, September 19, 2011


The 10 yr note last Friday pushed slightly above its 20 day average but at the end of the managed to close below it in the yield charts. Mortgages did the same from a technical perspective. The wider perspective though is that the 10 yr and mortgages remain confined to a narrow trading range and should continue so until at least Wednesday afternoon when the FOMC will release its policy statement at the conclusion of the 2 day FOMC meeting. Based on the newest surveys 69% of those questioned expect the Fed will announce what has now been tabbed as "Operation Twist"; selling short dated notes and buying more at the middle to long end of the curve. The intended benefit as far as I can see would be to keep long term rates low. It won't increase jobs, it won't stimulate small businesses to spend, and it won't help the housing sector. Low mortgage rates have been with us for months and there has been no noticeable impact.

The 10 yr note, driver for mortgage rates, has been flirting with 2.00% for two weeks; moving below it but unable to sustain it. On the upside the 10 has support at an around 2.10%. Mortgage prices stuck in a very narrow range that will contain the market until the bond market can break out of its range. Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce "Operation Twist" this week to buy longer-term debt to spur the faltering economy.

Europe remains one of main keys to US rates. Greece is the poster boy now but there are a couple more EU countries on the debt bubble. The EU, ECB still trying to come up with a "plan". Nothing new there, they have been working on something for over a year but still haven't been able to move away from the cliff edge. European Union and International Monetary Fund inspectors hold a teleconference today with Greece’s Finance Minister, Evangelos Venizelos, to judge whether the government is eligible for an aid payment due in October. Greece has sufficient cash to keep going until mid October.

At 10:30 this morning Obama will officially announce his plans to cut the deficit by increasing taxes on wealthy Americans. Obama will seek $248B in Medicare cuts, including reductions in payments to health-care providers and $72B in savings from the Medicaid state-federal health program for the poor, but will not seek an age extension for eligibility. Obama will threaten to veto any deficit plan that reduces Medicare benefits unless wealthy Americans also are asked to pay more in taxes. He will call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a plan to cut the U.S federal deficit by $3 trillion.

This Week's Economic Calendar:
Today; the NAHB housing market index, as released at 10:00
Tuesday;
8:30 am August housing starts and permits (starts -2.4%, permits -2.0%)
Wednesday;
7:00 am weekly MBA mortgage applications
10:00 am August existing home sales (+0.6%)
2:15 pm FOMC policy statement
Thursday;
8:30 am weekly jobless claims (-10K to 418K)
10:00 am FHFA housing price index (N/A)
August leading economic indicators (+0.1%)

At 9:30 the DJIA opened -165, the 10- yr note +28/32 at 1.96% -11 bp and mortgage prices +15/32 (.47 bp) on 30s and +8/32 (.25 bp) on 15s.

The Sept NAHB housing index fell one point to 14 frm 15; no reaction as it isn't much of a surprise. The pivot between expansion and contraction is 50.

The stock market continues its volatile swings, mostly based on the on-going news out of Europe. Over the weekend there was nothing new from the region; Greece faces a test today to see whether it has met the conditions laid out for the next dose of money to avoid default. There is still a view that Greece will default, but will not be kicked out of the EU. Unlike when the US was slammed with the 2008 financial market meltdown, Europe has 17 countries that can hardly agree on the time of the day. It goes on and on with no substantial progress.

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.

Wednesday, September 14, 2011


Prior to 8:30 the 10 yr note yield had increased to 2.03% +4 basis points from yesterday's close. Mortgage prices were down 3/32 (.09 bp). At 8:30 two data points, both weaker than expectations, improved treasuries and mortgages momentarily but it didn't last. August retail sales were expected to be up 0.2% overall and ex autos +0.3%; as reported sales were unchanged and ex autos +0.1%. July retail sales were revised to +0.3% frm +0.5%. August producer price index was expected down 0.1% overall and +0.2% when food and energy are removed, as reported PPI was unchanged and ex food and energy +0.1%. The weaker PPI supports the view that inflation isn't a problem. Yr/yr overall PPI +6.5%, ex food and energy +2.5%; at 2.5% it is at the Fed's target range. By 9:00 the 10 yr note yield was back to 2.02% and mortgage prices down 5/32 (.15 bp).

Sec Treasury Geithner on CNBC this morning saying Europe has the financial strength to avoid defaults in the countries that are on the edge with debt. He said he doesn't know whether there is the political will to do it. He said the obvious, that Europe's problems are causing a lack of confidence in the US. He encouraged Congress to pass the jobs bill offered up by the Administration. Europe's banks remain troubled; asked if the banks could pass the US bank stress tests, Geithner didn't answer pointing to the audience of funds managers saying they will be the judges. He admitted US growth isn't what the Administration had expected. His interview with Jim Cramer didn't move markets. His take away in the interview; he said there is no chance Europe will let their institutions fail.

Stocks rose for a second day in Europe, reversing earlier losses, on speculation China may still offer support for the region’s most-indebted nations. Greek Prime Minister George Papandreou will hold a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy amid speculation Greece will default.

Pessimism about the economy has deepened and confidence in both U.S. political parties has fallen, with only 20 saying the country is on the right course. As little as 9% of Americans say they are confident the economy won’t slide into a recession, according to a Bloomberg National Poll.

Mortgage markets were choppy this morning; at 9:00 mortgage markets -6/32 (.18 bp), at 9:15 -4/32 (.12 bp) and at 9:30 +1/32 (.03 bp). The 10 yr at 9:00 -7/32 at 2.02%, at 9:30 -4/32 at 2.01%; 2.00% continues to be a heavy lift to keep it below that key psychological level. Yesterday the 10 yr note auction wasn't met with strong demand, it was mediocre based on demand. At 9:30 the DJIA opened +24, lower than where the index traded at 9:00 am.

At 10:00 July business inventories, expected up 0.5%, were up 0.4%; June revised to +0.4% frm 0.3%. Sales were up 0.7%, the inventory to sales ratio to 1.27 months from +1.28 months in June. Business inventory growth is very weak recently reflecting the economic outlook. No reaction to the report in treasuries; the 10 yr had climbed back to unchanged from -11/32 early this morning.

At 1:00 Treasury will auction $13B of 30 yr bonds completing $66B of borrowing this week. The 3 yr and 10 yr auctions were OK but demand didn't match recent auctions; the 30 today should get more interest.

As long as the 10 yr note doesn't climb above 2.10% the positive outlook will continue, a break above it would set up a run up to 2.30% and take mortgage rates up with it. The treasury market remains slightly overbought based on momentum readings while the US stock market is equally oversold. Next week the FOMC will hold a two day meeting, some traders looking for more Fed help, while others including some FOMC members don't believe more easing is necessary.

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.

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

This Week; the 10 yr note and mortgages will start at historic 60 yr lows; the equity market is likely to continue its volatility with the indexes declining through the week. Obama's jobs plan apparently hasn't gotten any traction with investors, since his speech the indexes were hit hard Friday. Most of this week's economic data comes at the later part of the week. In the meantime Treasury will auction $66B of notes and bonds Monday thru Wednesday.

The debt crisis in Europe continues to impact US markets with Greece this week scheduled to make an agreed cut in spending in order to get the second infusion to avoid default. Based on news out of the country, they may not be able to meet the conditions laid out. There are a few voices now that question whether Greece should just default and start over. The sovereign debt issues are spreading and taking Europe's banks down on concerns of defaults in a number of countries.

This week's data points; PPI and CPI for August, the Sept Philly Fed index and August retail sales.

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 09, 2011



After waiting for two weeks for "The Speech" President Obama delivered one of his best oratory events since the Keynote speech at the Democratic convention six years ago. It was a good speech in the sense he laid out the political problems infecting Washington, yet it has been met with yawn by markets. The stock indexes early this morning slightly weaker and the bond market also a little weaker; no real big moves here or globally. “The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” he chided Republicans and to some extent his own party to get moving on initiatives to cut unemployment and imp[rove the economic outlook. The president demanded six times that lawmakers act “right away” his plan.

His plan totals out to be about $450B of payroll tax cuts, tax incentives for businesses that hire, infrastructure construction, funds to hire back more teachers. Some of the plan will be acceptable to the opposition, some won't. Tax cuts for small business and payroll tax cuts for workers are likely to get done; other elements won't see the light of day. Tax cuts account for more than half the dollar value of the president’s latest plan to turn the economy around, and administration officials said they believe that will have the greatest appeal to Republicans in Congress. The President said all of his $450B plan will be completely paid for----in the future; business as usual out of Washington. Most all of his plan is a temporary fix, nothing in it was permanent. The first stimulus, $825B, failed to increase jobs and stabilize the economy; this one is about the same in terms of being temporary. Businesses can't plan or increase hiring based on temporary stimuli. It is unlikely the President's plan will accomplish the intended goals but Congress has to get behind some of it otherwise it is another $450B wasted.

Early this morning the rate markets were weak; the 10 yr at 8:00 down 12/32 to 2.02% and mortgages off 6/32 (.18 bp) frm yesterday's closes. By 9:00 the bond and mortgage markets moved back to unchanged on the day; the stock indexes weakening as the open got closer. At 9:30 the DJIA opened -114, 10 yr +3/32 at 1.96% -2/32; mtgs +6/32.

Out of Pakistan there have been reports that three terrorists were to fly to the US, get into autos or trucks and blow up bridges and tunnels in remembrance of 9/11 10 yrs ago. US security has found nothing to corroborate the story but there has been an increase in security precautions.

US equity markets opened weaker this morning following weak markets in Europe. The bond market struggled early but by 9:30 crawled back to unchanged, mortgage prices at 9:00 -6/32 (.18 bp), by 9:30 +6/32 (.18 bp). Obama so far hasn't gotten market support for his plan; Europe is trumping most everything now with renewed concerns that Greece will not be able to meet the conditions set out for more bailout funds to avoid default. If Greece were to default it would increase fears that Italy, Spain, Portugal and Ireland may suffer the same fate. G-7 meeting in France today again trying to find an out for Europe's debt crisis.

Treasuries next week will meet auctions; Monday $32b of 3 yr notes, Tuesday $21B of 10 yr notes and Wednesday $13B of 30 yr bonds.

The rest of the day will be based on how stock markets perform----nothing unusual about that these days.

Technically, the 10 yr note has been struggling at 2.00%; this morning it is falling nicely so far, down to 1.95%. Over last weekend the 10 hit 1.91%.

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 08, 2011

Yesterday the stock market had a nice day, as is the case when stocks do better the bond and mortgage markets were weaker. This morning the stock market is weaker, therefore the bond and mortgage markets are doing better; neither however is much changed from yesterday's closes. The rate markets haven't seen any real movement for the last two weeks; the 10 yr note finding support at 2.30% and meets resistance at 2.00%. Mortgage prices equally tied in a narrow range tracking the 10 as it always does.

At 8:30 weekly jobless claims were expected to have declined to 400K from 409K posted last week; claims were up 2K to 414K and last week's claims were revised from 409K to 414K. Continuing claims at 3.717 mil frm 3.747 mil last week. Unemployment claims are locked at the 400K level, haven't moved below it, nor substantially above it. Treasuries and mortgages prior to the claims report were up 16/32 (10 yr) and +8/32 (.25 bp) on mortgage prices. By 9:00 the 10 yr up 10?32 at 2.01% while mortgage prices +4/32 (.12 bp).

July US trade deficit was expected at -$51.5B, as reported -$44.81B; the better deficit will add some to Q3 GDP growth.

ECB head Jean-Claude Trichet said this morning the economic outlook in Europe is not improving; saying the down-side risks are increasing. He noted inflation risks have subsided, implying the ECB will keep interest rates on hold after increasing them recently to head off inflation concerns; the central bank raised rates in April and July to combat price pressures. The central bank now forecasts inflation to average between 2.5% and 2.7% this year and between 1.2% and 2.2% in 2012. The debt crisis in Europe is increasing and is bringing the solvency of some of the areas banks into question. The debt mess has not seen any significant progress in months. Yesterday the German supreme court ruled Germany could continue to support recovery plans, markets took it as a positive rallying equity markets that fed to the US markets.

At 1:30 Bernanke will speak in Minneapolis; unlikely he will say anything that would precede the Presidents big speech this evening at 7:00 pm. The President is expected to announce a jobs creation plan that will ultimately cost $300B. Republicans will likely resist, after all that is what we live with, if one party says its white the other automatically says its black. Republicans have to temper their opposition to whatever Obama proposes this evening, people are fed up with political sniping as the economy slides toward another recession. Certainly, whatever Obama proposes won't sit well with conservatives; however at this point something has to be done. Whether Obama's plans work or not his presidency is on the line; if his plan fails he will have a big hill to climb in order to be re-elected.

At 3:00 this afternoon July consumer credit data will be released; it is one of my favorite reports each month as it clearly shows what consumers are doing----and spending. Unfortunately the data is old when it is released.

The financial markets may be quiet through the rest of the day with the 10 yr hugging 2.00% and stock indexes lower. Positioning this morning ahead of Obama this evening. Technical indicators remain positive but unless the bellwether 10 yr can break below 2.00% within a few days rates may increase a little, likely testing 2.30%.

At 9:30 the DJIA opened -65, the 10 yr note +11/32 at 2.00% and mortgage prices at 9:30 +5/32 (.15 bp).

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, September 07, 2011


After three days of selling in the stock market, the equity markets opening better this morning. Stocks up, interest rate prices lower; that is what we live with these days. The 10 yr note -12/32 at 9:15 the lowest of the session so far, the rate at 2.03%; mortgage prices -7/32 (.22 bp). The 10 yr note still working at 2.00%; yesterday morning in Europe the note yield fell to 1.91% then spent the US trading moving slowly higher to end the day at 1.98%. At 9:15 this morning the stock indexes were aiming to a higher open; the DJIA +137 and moving up into the 9:30 open.

There are no economic reports today until 2:00 this afternoon when the Fed will release its Beige Book; the Fed's detailed economic data from the 12 Fed districts. Generally nothing in the Book that markets are not aware of, but it does provide more detail from specific districts The Book normally doesn't present any surprises.

Early this morning the weekly MBA mortgage applications for last week showed minor gains in purchases but a decline in re-finances. The composite index for the week -4.9%. Low rates aren't boosting demand for refinancing or home purchasing, according to the Mortgage Bankers Association whose refinance index fell for the third straight week, down 6.3% in the September 2 week, with the purchase index up only 0.2% to hold near record lows. The 30-year mortgage rate, down nine basis points in the week to 4.23%, is near the record the low of last October. The 15-year rate, down eight basis points at 3.41%, is at a record low. This report offers very timely indications on the housing market as will this afternoon's commentary in the Beige Book.

Consumers have little reason or incentive to buy these days with prices and interest rates falling. Many that would like to re-finance and improve their financial situation are unable due to extreme tight underwriting and low appraisals. If the President and Congress want to do something that doesn't cost and may increase consumer confidence and spending they should open the pipeline increasing re-financing. Instead we have the FHFA launching $200B of lawsuits against banks and individuals over sub-prime bad loans. Will the FHFA also sue S&P, Moody's and Fitch for rating the CDOs made up of sub prime loans at AAA? No! If the government were to get out of the way the US economy would improve more quickly. Re-finance all mortgages that are current and have been current for six months with no appraisals and no credit underwriting; but no cash outs unless the appraisal allows it. Lowering mortgage payments is the same as getting a bonus or an increase in pay.

At 9:30 the DJIA opened +130, the 10 yr note -13/32 at 2.03% +5 bp and mortgage prices -7/32 (.22 bp) on 30s and -3/32 (.09 bp) on 15s.

The world is waiting for Obama tomorrow evening and what the opposition party will do with his proposals. Some of what he will announce is already out there; what isn't clear is how the Republicans will take it. Obama over the weekend set it up, saying politics has to be put aside. Yesterday John Boehner sent a letter to Obama indicating a somewhat conciliatory tone.

The 10 yr note really testing the 2.00% level, unable to sustain it below 2.00% for any length of time. We don't expect it will be easy to push rates much lower, however if the Fed steps up and increases buying at the long end of the curve the 10 will have an easier time of it. If, and it is a huge if, Obama and the Republicans can turn the outlook around with his plans the 10 won't hold below 2.00% and likely will edge higher----but not much.

MORTGAGE PRICES AT 10:05 AM, NOW 8/32 (.25 BP) LOWER THAN AT 9:30.

Mortgage Rates

Forwarded exclusively by:

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 02, 2011

It is employment day, therefore it is a stunning day. The August unemployment rate was unchanged at 9.1%; everyone stunned with the rest of the data. Non-farm jobs were expected up 60K on the most recent estimates, as reported there was no increase---zero; the estimate for non-farm private jobs was an increase of 75K, as reported +17K. In essence, no one hired anyone in August. In July non-farm jobs were originally reported up 117K, that was revised today to +85K; between July and June revisions 58K jobs were taken away from the two previous reports. August factory jobs declined by 3K. Average hourly earnings were expected up 0.2%, as reported -0.1%. Government jobs were down 17K. This has to be one of the worst and most shocking employment report in years. Quotes of the day; Sec of Labor Solis; "we have done all we can"..."I am very optimistic about the future"..."people are waiting for Congress to act"......" incentives so far have worked"....."the President has a plan, we know what works"......"we have had no co-operation from the other side of the aisle"......???

The US economy is declining at a pace even the pessimists are surprised to see and will increase the view the economy is falling back into recession; but is it? As usual with the employment report this one leaves us with a question; why was the unemployment rate unchanged at 9.1%? The stock market is being hit hard on the report, the bond and mortgage markets of course are improving. Is the August report a one and off reaction to the clown show in Washington over the debt ceiling in July? Weekly jobless claims do not show job losses increasing, claims have held at about 400K for weeks, what we have in August is that no one added new jobs. The way Republicans and Democrats and the President acted over the debt ceiling, putting politics above the good of the nation, has dropped the confidence levels from CEOs to consumers; that is clearly evident with this report.

Senator Corker (Tenn.) on CNBC this morning hit the preverbal nail on the head; he said Washington (politicians) have no idea what makes businesses function. Amen. What took place in Washington in the aftermath of the 2008 crisis is coming home to roost within the business world. Regulations were piled on by Barney Frank and Chris Dodd as both saw an opportunity to increase government's influence on businesses and consumers. Neither one of them had, or have a clue; Dodd/Frank must be repealed as well as choking the life out of regulators.

The 10 yr note rate fell to 2.04% on the news, down 10 basis points from yesterday's close; mortgage prices jumped up 13/32 (.41 bp) on the initial reaction. The DJIA futures at 9:10 was down 153. At 9:30 the DJIA opened -135, the 10 yr note 2.04% -10 bp and mortgage prices +13/32 (.41 bp).

After this employment report two things will dominate in the next week. What will Obama say in his speech next Thursday evening? And what will the Fed do when the FOMC meets on the 21st of Sept? As for Obama, so far in this economic downturn he has stuck out on about everything he has proposed; lots of rhetoric but no substance, shovel-ready jobs--no, $53B for rapid rail---a waste of money, and it goes on. Republicans no better with the way they performed on the debt ceiling debates----children! The Fed has only on option that might help, QE 2 didn't do anything except print more money and increase the Fed's balance sheet, QE 3. Another easing to ram the 10 yr note below 2.00% that will lower mortgage rates may help some but not much as long as there is no changes in lending polices; underwriting, appraisals, and increased costs. The Fed's likely move may be to lengthen the maturity of its balance sheet; selling shorter dated maturities and increasing the longer maturities with the purpose of pushing the 10 yr lower and lower mortgage rates....1.5% on the 10 yr? not likely.