Mortgage Rates

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. The Europe debt crisis is back with a major sell-off in US and global equity markets, and a move into US treasuries pushing the bellwether 10 yr note and mortgage rates to new historical lows. This week Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund will descend on Greece to review the debt crisis I the country. There is now concern that Greece will fall into depression similar to the US depression in the 30s, and an increasing concerns Greece will exit the EU. It shouldn’t be a shock to markets, there is little chance Greece can survive in the EU, nevertheless after a couple of weeks with not much out of the region it is now back with renewed fears. The reaction is sending US interest rates to record lows and the stock market down hard this morning. After euro finance ministers failed to staunch a decline in the single currency with the approval of a 100 billion-euro ($122 billion) aid package for Spanish banks last week, the 3 governing bodies will seek to determine the fiscal state of Greece where the crisis began almost three years ago. The euro currency is crumbling setting new lows against the dollar and the Japanese yen. The euro slipped below its lifetime average against the U.S. dollar art $1.2080. The market consensus now is that Greece will not be able to meet the requirements set out when it got bail-out money. Germany over the weekend said it will not agree to reworking the Greek bailout plan. “If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told the media yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.” The repercussions over Greece has sent Spain’s 10 yr note to a record 7.48% this morning up about 30 basis points in the last couple of days. Italy’s cost of borrowing also increasing to levels that will add more problems for it getting more money to fend off another crisis. Spain is next up for the rolling crisis. At 9:30 the DJIA opened -179, NASDAQ -63, S&P -20. The 10 yr note at 9:30 at 1.42% -4 bp and mortgage prices up 6/32 (.18 bp). The renewed concerns over the debt crises in Europe will support the bond and mortgage markets this week. However, although this morning the fear factor and concerns are at high levels, we have experienced this many times in the last couple of years. Markets will react on any comments out of the region. While Greece in the wider perspective is finished in the EU, momentary comments from the IMF, the ECB or the EU that sound more optimistic will get traders’ attention with market swings that could be severe similar to what we are seeing this morning. That said, technically the bond and mortgage markets are increasing their bullish bias. Expect the possibility of volatile markets this week.

Mortgage Rates

Mortgage Rates Treasuries and mortgage markets opened a little better this morning with US and Europe’s stock markets weaker. Today there is no data scheduled and none on Monday. Trade today should be rather quiet with nothing to trade from. Treasuries are higher (prices), with five-year yields falling to record lows, on concern a $122 billion bank rescue plan for Spain approved by European finance ministers may not be enough to halt the sovereign-debt crisis. In Europe Spain’s 10-year bonds fell for a seventh day, increasing the extra yield investors demand to hold the securities instead of German bunds to the most on record, amid concern slowing growth will worsen Europe’s debt crisis. German bunds extended a third weekly gain after a report showed producer prices in Europe’s largest economy declined more in June than economists forecast. Germany’s two-year yields were less than zero for an 11th day before a survey next week that economists said will show euro-area consumer confidence worsened for a second month in July. German producer prices declined 0.4 percent last month, after dropping 0.3 percent in May, the Bundesbank said in Frankfurt. Prices were forecast to fall 0.2%, according to a Bloomberg News survey of economists. The DJIA opened -75, NASDAQ -13 and the S&P -7. The 10 yr note at 9:30 1.47% -4 bp; 30 yr mortgage price +4/32 (.12 bp). A nice move for treasuries but MBS prices lagging so far this morning. The 10 yr testing the 1.46% resistance level again. If the 10 yr closes under 1.46% the yields will likely continue to fall, if not the tight trading range will continue with little change in interest rate markets. Interest rates are trading in a narrow range ahead of the idea that the Fed will ease again. The issue is not about another easing, it’s when it will come. We don’t think the FOMC meeting at the end of July will announce an ease, presently, given how US markets are trading most are looking for an easing in Sept. Much of it will depend on the July employment report which won’t be known until August 3rd and after the FOMC meeting on July 31st and August 1st.

Mortgage Rates

Mortgage Rates US treasuries were strong prior to 8:30 with the key stock indexes weaker; at 8:00 the 10 yr yield was at 1.48% after ending at 1.51% yesterday. As noted, there is strong resistance from a technical perspective at 1.46%, yesterday after the extremely strong demand for Treasury’s 10 yr auction the 10 made a quick but unsustained run to 1.459%---the rate the auction drew. It was however, short-lived after the FOMC minutes didn’t add more conviction that the Fed would initiate another QE. The FOMC minutes didn’t imply no easing, they were about what we already knew but still the stock market weakened and rate markets fell back a little. At 8:30 weekly jobless claims were expected at about 370K, as reported claims fell to 350K frm 376K last week. The decline was not much of a surprise however, analysts attribute the fall in claims to the expected lack of layoffs in the auto industry that occurs each year at this time when manufacturers re-tool for the new model year. The reaction to the less claims didn’t help improve pre-opening weakness in key equity market indexes; interest rate markets held well but were off the best levels prior to 8:30. The four-week moving average, a less-volatile measure, fell to 376,500 last week from 386,250. The number of people continuing to collect jobless benefits fell by 14,000 in the week ended June 30 to 3.3 million. The continuing claims figure does not include the number of workers receiving extended benefits under federal programs. June import prices fell more than what was thought; down 2.7%, it was the biggest since December 2008 and followed a 1.2% drop in May. The decline was largely due to the recent decline in oil prices. Prices excluding fuel fell 0.3%, the most in almost two years. The cost of goods and materials from abroad may remain depressed as cooling markets from Europe to Asia restrain demand for commodities like oil. A rising dollar also means American companies can hold the line on prices, consistent with Federal Reserve policy makers’ projections that inflation will ebb. Not much out of Europe today that has significance to traders. The situation in the EU is well-known by now, dragging the world economies lower. Although markets appeared to be disappointed with the FOMC minutes yesterday, the Fed is still n play for another easing move. There was an increasing thought that the Fed would ease at the next FOMC meeting at the end of this month, however the take away from the minutes suggests any easing would likely to delayed until the Sept meeting. Does it matter that the Fed will ease? Any additional easing won’t add a job or help the economy other than keeping interest rates from otherwise increasing. The Fed has no live ammo to use other than buying up more treasuries; meanwhile recent data reveals the in anticipation of more Fed buying, banks are beginning to hoard treasuries. At 1:00 this afternoon Treasury will complete its borrowing this week with $13B of 30 yr bonds in a re-open of the 30 yr issued in May. Yesterday the 10 yr note auction saw demand that was the strongest in years. What stood out more than anything else was that 45.4% of the $21B was bought directly from Treasury ( the norm is about 10% for direct buyers. The implication is banks were heavy buyers, avoiding buying through primary dealers. At 2:00 Treasury will report the June deficit at -$75B. The deficit continues to increase with little end in sight as Congress and the Administration are not likely to increase taxes or cut spending until after the elections in November. Even then there is little reason to expect politicians have the guts to deal with the debt growth. The US is on the same track that led to the EUs eventual demise as presently constructed; nevertheless there is little stomach to deal with it, pushing it further down the track. At 9:30 the DJIA opened -73, NASDAQ -25 and the S&P -10; the 10 yr note at 1.49% -2 bp with mortgage prices up just 1/32 (.03 bp) frm yesterday’s closes. The bond and mortgage markets are trading at their respective resistance levels. Likely it will take a few days and more negative economic data as well as more nasty news out of Europe to break the resistance areas into new lows.

Mortgage Rates

Mortgage Rates Just prior to the 8:30 employment report for June the 10 yr note traded +3/32 at 1.58%, 30 yr MBS price +1/32 (.03 bp). The expectations for private jobs was increased yesterday after ADP reported 176K private jobs, with forecasts of just 105K. 30 yr mortgage rates hit a new record low yesterday, not by a lot but a new record nonetheless; the 10 yr note has technical resistance at 1.56%. June employment data at 8:30 was another indication the US economy is slipping; non-farm jobs after the ADP data yesterday were expected up 115K with most guessers increasing estimates. Non-farm jobs increased a weak 80K, private jobs up 84K, half what ADP thinks. The unemployment rate unchanged at 8.2%. If we average out the private job growth it amounts to 1680 new jobs per state, hardly a reflection of any job growth of substance. The only positives were average hourly earnings were up 0.6% and the average work week was longer. Europe is continuing to drag the world down. There are those however that will argue there are other issues pulling recovery down but the bottom line, with no caveats, is Europe’s inability to find a workable solution to the over-spending in many of the EU countries that went completely unchecked for years; the US sub-prime meltdown began the financial crisis that continues with no end in sight at the moment. The IMF is about to lower (again) its estimate for global growth. Weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Lagarde said in a speech in Tokyo that is forcing it to lower its forecasts once again. The IMF has already lowered its U.S. growth estimate to 2.0% from April’s 2.1%. “The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said. “And even that lower projection will depend on the right policy actions being taken.” The new outlook will be announced in 10 days according to Lagarde, after an April estimate of 3.5%. The most recent Federal Reserve data released last month lowered the growth outlook for the US for the second time since last November. After another weaker data point the initial thoughts have turned to another QE from the Fed when the FOMC meets at the end of this month. Central banks are cutting rates and increasing buying. China and the ECB cut rates over the last few days, the Bank of England announced it would increase purchases in its QE endeavor. With soft reports in almost every category of measurements over the last two months, and now the June employment report, the view of the Fed launching anther QE has increased. What can the QE do to increase employment? Not much, but in the end the Fed is the only body that can do anything even with very little ammo left in its arsenal. One analysts this morning offered the Fed should increase the cost to banks for excess reserves held by the Fed, possibly actually charging banks to hold reserves; the idea would be to force banks to increase lending. Sounds good but unlikely banks are going to lessen stringent lending requirements; it a chicken-egg thing; improving economic outlook would allow banks to lend more, however banks are not going to lead the charge. At 9:30 the DJIA opened -120, NASDAQ -22. The 10 yr at 9:30 still didn’t break through its resistance at 1.56%. Mortgage prices up 7/2 (.22 bp) frm yesterday’s close. A lot of talk this morning after another weaker than expected data point, that the Fed will launch another QE---but talk is just that. Action is where the rubber meets the road, and so far action in the bond market isn’t showing much optimism that the Fed will move to lower interest rates. The 10 yr note still isn’t able to crack the month long resistance at 1.56%. Mortgage markets are setting new records though, investors buying the higher interest rates instead of moving to safety into treasuries. There hasn’t been anything out of Europe officials since the summit meeting last week that would suggest any progress or anything that would increase the fear factor either. The ECB lowered rates and lowered collateral requirements for banks in the EU, a positive baby step, but a step nevertheless.

Mortgage Rate Update

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Mortgage Rate Update

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Mortgage Rates


Treasuries and mortgages doing a little better to start this week’s action. The 10 yr note +6/32 at 1.62% and at 9:30 30 yr mortgages +3/32 (.09 bp) frm Friday’s closes. The DJIA opened -16, NASDAQ -3.

The 4th falls in the middle of the week. Trading volumes should be thinner than usual with many taking a few days off. There are a number of key measurements this week; both June ISM reports (manufacturing today (see below) and services on Thursday), weekly claims on Thursday and the June employment data on Friday. The early forecast for the employment report, non-farm payrolls +100K and non-farm private jobs +105K with the unemployment rate unchanged at 8.2%.

At 10:00 two reports; the June ISM manufacturing data main index was expected at 52.2; as reported manufacturing in the U.S. unexpectedly contracted in June for the first time in almost three years, indicating a mainstay of the U.S. expansion may be faltering. The Institute for Supply Management’s manufacturing index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May. The ISM’s U.S. production index decreased to 51 from 55.6. The new orders measure dropped to 47.8, the lowest since April 2009, from 60.1, and the gauge of export orders declined to 47.5, also the lowest in three years, from 53.5. The employment gauge decreased to 56.6 from 56.9 in the prior month. The unexpected decline sent interest rates lower and stock indexes down frm pre 10:00 levels. May construction spending also at 10:00 was stronger than the 0.2% expected, increasing 0.9%.

Europe’s economy is showing increasing signs of weakness after stalling in the first quarter as the worsening fiscal crisis erodes the confidence of executives and consumers. The gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8. A reading below 50 indicates contraction. The European Central Bank’s governing council gathers in Frankfurt on Thursday with speculation officials will lower their benchmark interest rate by at least 25 points to a record low of 0.75% as the economy hovers near recession.

A purchasing managers’ index for China fell to 48.2 in June from 48.4 in May, HSBC Holdings Plc and Markit said today. A similar measure released by the government yesterday also slid. The purchasing managers’ index released yesterday by the Beijing-based statistics bureau and China Federation of Logistics and Purchasing fell to 50.2 in June from 50.4 in May. The data showed inflation pressures waning, a slump in export orders, a lack of domestic demand and a “modest” decline in the size of the manufacturing workforce. The gauge of export orders in the federation’s index contracted for the first time since January.


The US 10 yr note and 30 yr mortgage rates continue to trade in their respective narrow ranges; both are holding within five week ranges but there is an increasing belief Europe won’t drive safety moves into US treasuries as strongly as the last eight months. One of key reasons US rates have stayed low is due to investors parking money in the safest places as Europe wrestles with how to save banks and cut spending.