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.


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.

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.

Interest 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, May 11, 2011

Yesterday ended 8 straight days of improvement in the bond and mortgage markets, the 10 yr yield increased 5 bp and mortgages up 4 bp. This morning in early trading the 10 down 2/32 at 9:00 and mortgage prices down 3/32 (.09 bp). The 10 yr note driver for mortgages hit 3.14% the level hit in March and failed to break through for three days, the FNMA 4.0 coupon tested but couldn't break its 200 day moving average. Technical momentum oscillators have been in very overbought levels for 4 days. Unlikely the bullish longer term outlook will change but traders will be cautious here and prices may fall further.

At 8:30 the March international trade deficit was $48.18B, Feb deficit was $45.4B. The deficit was in line with forecasts and estimates, no reaction to it. High oil prices in March drove imports  up eclipsing exports. Crude oil costs that surged above $100 a barrel for the first time in more than a year and a 9.4% drop in the dollar will probably keep driving up the cost of imports. The weaker dollar however will continue to support exports to emerging markets, China and India.

Mortgage applications increased 8.2% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending May 6, 2011 on lower interest rates. The Market Composite Index, a measure of mortgage loan application volume, increased 8.2% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 9.0% from the previous week, and is at its highest level since the week ending March 18, 2011.  The seasonally adjusted Purchase Index increased 6.7% from one week earlier. The unadjusted Purchase Index increased 7.1% compared with the previous week and was 25.8% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 2.9%.  The four week moving average is up 0.4% for the seasonally adjusted Purchase Index, while this average is up 4.3% for the Refinance Index. The refinance share of mortgage activity increased to 63.1% of total applications from 62.7% the previous week. The refinance share is at its highest level since the week ending March 25, 2011. The adjustable-rate mortgage (ARM) share of activity decreased to 6.5% from 6.7% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.67% from 4.76%, with points increasing to 1.10 from 0.75 (including the origination fee) for 80% loans.  The 30-year rate is at its lowest since December 2010. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.81% from 3.96%, with points increasing to 1.05 from 0.82 (including the origination fee) for 80% loans. The 15-year rate is at its lowest since November 2010.

At 9:30 the DJIA opened down 46 points pulling the 10 yr note back to unchanged and mortgages just .03 bp lower from yesterday's close. With equity markets starting weaker and the dollar stronger mortgages and treasuries have gotten a boost from earlier lower prices, but with the 10 yr auction this afternoon the rate markets will likely sit still this morning.

At 1:00 pm Treasury will auction $24B of 10 yr notes, the demand will be critical to hold rates at these levels. In the meantime we don't look fro any market improvements into the auction, this afternoon after 1:00 look for increased trade on auction results.

At 2:00 this afternoon Treasury will report the April budget data, estimates are for a monthly deficit of $60.0B.

The dollar is stronger against the euro this morning. Bank of England Governor Mervyn King said that inflation remains “uncomfortably high,” and officials signaled they may need to raise interest rates later this year even as the economy struggles to build momentum. Inflation across the world is persisting, putting pressure on central banks to withdraw stimulus and raise interest rates. In China, inflation held above 5 percent in April and lending exceeded analysts’ estimates, according to reports today. Germany’s rate jumped to 2.7 percent, more than initially estimated, separate data released today showed.

Crude oil rallied yesterday, this morning down $1.79 at 9:45; choppy as markets continue to assess demand against supply. Higher margin costs have eliminated some speculators that do not have deep pockets; volatility increase also keeps specs from aggressive trading.

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.

Tuesday, May 10, 2011

Treasuries and mortgages continue to hold gains but fractionally lower early this morning; no selling just no buying ahead of today's $32B 3 yr note auction at 1:00. At 8:30 April import prices were reported up 2.2% and +11.1% yr/yr, export prices +1.1%; no noticeable reaction to the data. Earlier this morning the NFIB reported small business optimism declined again, at 91.2 in April frm 91.9 in March and the lowest reading since last October. The survey indicated small business owners concerned over inflation and the weakening economy; again no noticeable reaction.

At 9:30 the DJIA opened +23, the 10 yr note -4/32 at 3.17% +1 bp and mortgage prices -1/32 (.06 bp). Not much that can move markets today, similar to yesterday. Technically overbought bond and mortgage markets but the outlook is so bullish that traders see little reason so far to take profits. One factor we are watching, increasing margin rates for all commodities that are making it more expensive to participate in gold, silver, crude and others, pushing traders and investors out and into treasuries that are widely believed to move lower in rates. This morning the NYMEX announced crude oil margins will increase 25% at the end of the day today.

Republican congressional leaders are ruling out tax increases or a wider revenue base in talks on extending the U.S. government’s borrowing authority, creating a conflict with Democrats who would raise more money as well as cut spending. House speaker Boehner predicted that Congress would act on a broader revision of the tax code in the next two years, though he said that Republicans wouldn’t support it “as a way of increasing taxes on the American people or enterprises.” Boehner said that “without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase.” Spending cuts “should be greater” than the amount of the “increase in debt authority” given to President Barack Obama, he said.
The ECB is working on another loan plan for Greece. Another loan package will buy time for Greece and the potential for a default will be pushed back, still no assurance that Greece will make in through; there is a meeting of the ECB coming on Monday to work out the plan. The International Monetary Fund also is arranging new aid for Greece, an 80 billion-euro ($115B) to 100 billion-euro plan. Greece’s money managers are warning of damage to an already crippled economy should European leaders move to restructure the country’s debt.
At 10:00 another data point that will go with little notice; March wholesale inventories, expected up 1.0%, were up 1.1%.
At 1:00 Treasury begins its quarterly refunding with $32B of 3 yr notes, given the strength in the rate markets the auction should see good demand. Tomorrow it is $24B of 10 yr notes that could be a problem; if however the auction is well bid the 10 will likely resume its rate decline and push mortgage rates lower with it. Recent activity in the MBS markets has been a little better than treasuries with good demand for FHA paper.
Crude oil is lower today after running up almost to recent highs at $114.00+; this morning with margin rates going up at the end of the session crude is down $0.57.

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 09, 2011

Treasuries and mortgages opened soft early this morning but by 9:00 were recovering with only minor price declines. No scheduled data today; most attention focused on the dollar and continuing concerns over Greece's debt. There was no additional news from the ECB or Greece over the weekend however. Last week the euro fell the most in a week since back in 2008 with concerns Greece would not be able to survive in the EU, this morning the dollar is slightly weaker against the currency. A weakening dollar continues to support US bond markets.

Crude oil fell almost $17.00, gold dropped $65.00, all commodities declined last week as most of the markets had become way to frothy leading the exchanges to increase margin rates. This morning crude started up over $2.00 but since has backed of a little, volatility in crude should be expected this week, the same with gold and silver and the rate markets. The economic outlook is being adjusted lower taking any concerns about inflation off the table. Some pundits beginning to talk about anther easing move from the Fed as the economic outlook deteriorated last week. Although the April employment report headlines were much better than thought (non-farm private jobs up 268K), markets generally ignored it; Friday no change in rates and only an anemic close for equity markets.

Treasury will conduct its quarterly refunding beginning tomorrow, auctioning $72B of 3 yr, 10 yr and 30 yr notes and bonds. We expect good demand for all three auctions with global economic outlooks softening and inflation fears that come and go are now less threatening.

This Week's Economic Calendar:
      Tuesday;
          8:30 am April export and import prices (N/A)
          10:00 am Mar wholesale inventories (+1.0%)
          1:00 pm $32B 3 yr note auction
    Wednesday;
          7:00 am Weekly MBA mortgage applications
          8:30 am Mar Trade balance (-$47.7B)
          1:00 pm $24B 10 yr note auction
   Thursday;
         8:30 am weekly jobless claims (-51K to 423K; con't claims 3.70 mil frm 3.733 mil last week)
                      April PPI (+0.5%; ex food and energy +0.2%)
                      April retail sales (+0.6%; ex auto sales +0.5%)
        10:00 am Mar business inventories (+0.9%)
         1:00 pm $16B 30 yr bond auction
   Friday;
         8:30 am April CPI (+0.4%, ex food and energy +0.1%)
         9:55 am U. of Michigan consumer sentiment index (69.5 frm 69.8)

The DJIA opened at 9:30 +14, mortgage prices -1/32 (.03 bp).

Technicals in the bond and mortgage markets remain overbought, possibly some pullback and consolidation here but the markets are quite bullish presently, as long as that continues not much retreat in the bond market. This week will likely be marked with increased market volatility.

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.

Friday, May 06, 2011

The monthly BLS employment report generally does not disappoint when it comes to volatility and data that is well off the mark; once again this morning it held to its pattern. Non-farm payrolls were widely expected up 185K to 200K, as reported NFP jobs increased 244K in April. Non-farm private jobs were expected up 200K, as reported up 268K, the biggest monthly increase since Feb 2006. The unemployment rate was expected unchanged at 8.8%, as reported up to 9.0%. The average hourly earnings was thought up 0.2%, as reported +0.1%.

Employment in April was up across the band of specific jobs; retail jobs increased 57,100 the largest increase since April of 2000; manufacturing +29K, goods producing +44K, service-providing +224K, government jobs down 24K. Those unemployed fro more than 27 weeks declined to 5.839 mil frm 6.122 mil in March. The U-6 unemployment rate at 15.9%; U-6 measures total unemployment, plus all personnel marginally attached to labor force and total employed part time plus all persons marginally employed.

The obvious reaction to the stronger employment report sent rate markets higher in rate, lower in prices. Although the 10 yr note rate jumped from 3.16% at the close yesterday, at 9:00 it was up to 3.22% essentially erasing all of the gains yesterday. Mortgage prices yesterday were up 16/32 (.50 bp), at 9:15 this morning down 10/32 (.31 bp).

Treasuries and mortgage rates moving lower, mostly safety moves as commodity prices collapsing after the two month rallies that pushed most all commodity prices to excessive levels forcing trading exchanges to move margins higher. The commodity price increases were driven by growing concerns inflation would take hold, became well overbought by speculators; with exchanges increasing margins many were forced out driving prices down hard. Gold, silver, oil lead the way lower yesterday in mass liquidation adding to the recent decline in rates.

The recent decline in rates is reflecting a more placid view of inflation which had been gaining momentum in the markets for the past two month, and the reality that the US economy isn't and won't be as strong as was thought earlier this year. In Europe the ECB started increasing rates a month ago to combat inflationary pressures and until yesterday's ECB meeting it was consensus that the bank would continue. Jean-Claude Trichet, ECB head, implied yesterday that the bank may not increase rates as inflation pressures are expected to ease. Here in the US not many were buying into Bernanke's view that commodity prices were "transitory" and wouldn't drive inflation up, yesterday's commodity sell-off made a lot of believers.

Weaker expectations for growth in the economy raising concerns that equity markets may be too lofty, lowering inflation fears, and the momentary belief the Fed will keep rates low and possibly have to step up for a Q 2.5; all have been catalysts for the recent decline in rates. While we all applaud it, the bond market still has a lot to consider if rates are to remain at these lows.

This morning crude oil continues to decline, silver lower but gold higher. The DJIA opened +107; the 10 yr -17/32 3.22% +6 bp and mortgage prices -9/32 (.28 bp). (see below for 10:00 levels). The recent decline in rates has the bond market overbought technically, expect some consolidation here and some minor back-up in rates. The next week or so will be marked with an increase in volatility with wider intraday trading ranges; however the wider outlook will likely remain bullish with the uncertainty about the economy and the commodity markets, already this morning the bond and mortgage markets are well off initial low prices on the employment data.

Later this afternoon at 3:00 March consumer credit data; one of our favorite measurements of consumer sentiment. Forecasts are for credit to have expanded by $5B.

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.

Thursday, May 05, 2011

Treasuries and mortgage markets better again this morning with the stock market weaker. Crude oil, gold, silver and other commodities lower as the commodity bubble continues to burst. At 8:30 more bad news for the economy, weekly jobless claims were expected to have declined 29K they increased 43K to 474K, the biggest increase since Aug 2010. Continuing claims increased to 3.733 mil frm 3.659 mil. The 4 wk average now at 431,250; 400K is considered pivotal by many analysts, not sure why other than its an easy rounded number. A huge shock to markets with many still professing economic improvement; that view has been shaken badly in the past week and is turning markets around quickly. Although the headline hit hard there were some seasonal factors that may have exaggerated the increase; a spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge. 

Q1 preliminary productivity increased 1.6% a little better than expected (+1.0%) but weaker than Q4 2010 at 2.6%. Q1 unit labor costs were up 1.0% a tad higher than thought (+0.8%), costs in Q4 were down 0.6%.

Crude oil last Friday traded at $114.00, this morning $106.00; gold last Friday $1560.00, now $1504.00, silver, copper and other commodities all reversing after months of increased prices. Markets seem to go from one bubble to the next, the commodity bubble being the latest and now bursting.

The Bank of England kept its benchmark interest rate at a record low (0.5%) as signs the recovery is losing momentum kept a majority of policy makers focused on stimulating growth during the government’s fiscal squeeze.

Jean-Claude Trichet, ECB chief left interest rates unchanged after recent increases to fight off inflation. He said the bank will monitor upside inflation risks “very closely,” suggesting it may wait until after June to raise interest rates again. “It is essential that recent price developments do not give rise to broad-based inflationary pressures,” Trichet commented after leaving rates unchanged at 1.25%. Central banks in the Philippines and Malaysia today raised interest rates, and India this week increased its borrowing costs for the ninth time since March 2010. Rates in China, may rise further after its central bank said yesterday that taming inflation is its top priority.

The bond and mortgage markets are better this morning but have already slipped back from their best levels at 9:00 after the data at 8:30. The 10 hit 3.17% at 9:00, at 9:30 3.19%; mortgage prices at 9:00 +8/32 (.25 bp), at 9:30 +4/32 (.12 bp). The technical's are in overbought levels on the momentum oscillators and relative strength index, the potential of some consolidation exists now. At 9:30 the DJIA opened -51, as long as the indexes are weaker the bond and mortgage markets should hold gains; any recovery in equities with bond mkt overbought will likely pressure prices in mortgages. The wider perspective remains positive, however at present low yields we wonder how much lower rates can fall.

Nothing left today in terms of scheduled news; the rest of the day will be guided by the equity market trading. Tomorrow the April employment report which now is expected to show less job growth than was expected earlier this week after the ADP report yesterday and the increase in weekly claims last week and this week although today's claims are not part of the data gathered for tomorrow's report.

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, May 04, 2011

Slightly weaker this morning in the bond and mortgage markets after the 10 yr hit 3.25% yesterday, more of a psychological level than technical but still a level that may be tested before it tries breaking lower. The outlook for lower rates remains in tact, however at these levels to work lower won't be an easy ride.

ADP reported its estimate for non-farm private jobs at 8:15 this morning; 179K jobs is their estimate, forecasts were for 200K. The increase in April is the lowest estimate from ADP this year and emphasizes employment gains are far below what is needed to get the economy growing. This recession is the worst in 60 years and recovery will take much longer than in past recessions. Not much of surprise given the collapsed housing sector and increasing numbers of job losses that will be permanent. Friday the official BLS employment data, estimates are still for +183K non-farm job growth and +200K non-farm private jobs with unemployment at 8.8% unchanged from March.

At 10:00 April ISM services sector index expected unchanged at 57.3 in March; it was lower at 52.8. The weaker services sector rallied the bond market and dropped equity indexes.

Treasury announced next week's quarterly refunding; $32B of 3 yr notes, $24B of 10 yr notes, and $16B of 30 yr bonds.

Boston Fed Pres. Rosengren, in a speech this morning made the case that interest rates will likely remain low for quite awhile: "So with significant slack in labor markets, stable inflation expectations, and core inflation well below our longer run target, there is currently no reason to slow the economy down with tighter monetary policy. Until we make more progress on both elements of the Federal Reserve's mandate-employment and inflation- the current, accommodative stance of monetary policy is appropriate." Rosengren is not a voter on the FOMC, he states the case against all the recent fears coming from markets that inflation is a worrying point. One more voice in the cacophony of opinions' presently being debated.

The weekly MBA mortgage applications out early this morning. The Market Composite Index increased 4.0% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 6.0% from the previous week. The seasonally adjusted Purchase Index increased 0.3% from one week earlier. The unadjusted Purchase Index was 36.9% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 0.9%. The four week moving average is down 2.4% for the seasonally adjusted Purchase Index, while this average remained unchanged for the Refinance Index. The refinance share of mortgage activity increased to 62.7% of total applications from 61.6% the previous week. This is the highest refinance share of the month. The adjustable-rate mortgage (ARM) share of activity increased to 6.7% from 6.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased for the third consecutive week to 4.76% from 4.80%, with points decreasing to 0.76 from 1.00 (including the origination fee) for 80% loans. This is the lowest 30-year fixed contract rate since December 3, 2010.  The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.96% from 4.03%, with points decreasing to 0.82 from 0.96 (including the origination fee) for 80% loans. This is the lowest 15-year fixed contract rate since November 26, 2010.

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.

Tuesday, May 03, 2011

A better start this morning after a generally unchanged session yesterday. Markets working on the after impact (if any) frm the news Osama is dead. Yesterday the equity markets made an attempt to rally on relief but ended the session slightly weaker, the bond and mortgage markets saw no safe haven moves based on the view that Islamic terrorists would take revenge in the US with attacks. Crude oil ended lower as did gold; it appears that killing Bin Laden has had little impact. Had we gotten him seven yrs ago it may have had a different impact. After 10 yrs markets and the economy have moved on. High kudos to the Seals and intel agencies, and the President but markets are non-plused.

This morning crude oil started down $1.50 after falling $0.80 yesterday; gold yesterday down about $11.00 early this morning down another $13.00. Stock indexes early pointed to a weaker open. The 10 yr note at 9:00 was hitting open its key resistance at 3.25%.

Markets, whether interest rates, equities, oil or gold working on two issues. On one hand the economic outlook in the US is being ratcheted lower from early estimates this year, on the other concerns that terrorists will launch retaliatory attacks on the US Bin Laden had always encouraged hitting oil targets to cripple Europe and the US. So far there has been nothing coming from any terrorist cell and Bin Laden's family is advocating no retaliatory moves.

The Johnson Redbook retail sales report released this morning showed sales were up 5.5% from this week last year. The Goldman Sachs retail sales were up just 2.8% yr/yr. Easter buying is distorting both reports with Easter much later this yr than last.

At 9:30 the DJIA opened -8, the 10 yr note +5/32 at 3.26% -2 bp and mortgage prices up 3/32 (.09 bp).

At 10:00 March factory orders, expected up 1.9%, jumped 3.0% and Feb revised from -0.1% to +0.7%; ex transportation orders up 2.6%. Mar durable goods orders were revised to +2.9% frm +2.5%. Treasuries and mortgages slipped a couple of 32nds on the news.

So far markets have not been unusually disturbed one way or the other over the Bin Laden news. Unless there is an unexpected event attention will turn back to domestic issues; Friday is employment with non-farm private jobs expected to have increased by 200K with unemployment unchanged at 8.8%. Tim Geithner said yesterday he can keep the government from shutting down until August 2nd using what treasury always has in the past, accounting moves. With more time can Congress and the Administration find common ground on cutting spending and likely increase the debt ceiling?

No noticeable moves into treasuries on safety concerns after "The Killing"; no reaction in the equity markets either. In commodities gold is falling back but so far it isn't anything more than what could be expected after the recent spike; crude oil backing off on weaker economic forecasts and no outward fear of any additional disruptions in supply. Over $4.00 demand will decline for gasoline.

The 10 yr note, driver for mortgages is at its resistance at 3.25%, with employment on Friday rate markets may hold here or back up a little. Rates have fallen substantially over the past month, to expect that to continue employment will have to be weaker and equity markets suffer further selling.

First Time Home Buyer and Down Payment Assistance Seminar

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?