Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened lower (price) this morning; yesterday the 10 yr note fell back to its 1st resistance at 1.85%, early today back to 1.89% while MBS prices early down 15 bp at 9:00. Late yesterday 30 yr FNMAs saw some late buying about 4:45 pushed the price up 8 bp frm where we marked tem at 4:00. Weekly jobless claims at 8:30, the first and only key economic release this week, were expected at 362K down 10K frm last week’s claims; as reported claims were at 371K up 4K. Last week’s claims were revised from 372K to 367K, the change with revisions didn’t change the estimates that much. Claims have been about 370K for weeks, no improvement but equally no worsening. No firings or no hiring’s. No state data were estimated, according to a Labor Department official, who said there was “nothing unusual” in the figures. The four-week moving average, a less volatile measure than the weekly figures, climbed to 365,750 last week from 359,000. Continuing claims, those receiving unemployment, dropped 127,000, the most since January 2011, in the week ended Dec. 29 to 3.11 million. The figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 75,500 to 1.99 million in the week ended Dec. 22. There was no change in the markets on the 8:30 report frm levels prior to the release. This afternoon President Obama will officially nominate Jack Lew to replace Tim Geithner as Treasury Secretary. Lew has been Obama’s chief of staff; before that Lew served as Obama’s director of the Office of Management and Budget, a position he also held in the Clinton administration. The theory now is that the Administration will be less attached to the Fed; Geithner before being Secretary was President of the NY Fed tying the Fed and the Administration a little closer than it is likely to be going forward. Lew’s fist test will be the coming debt ceiling battle that will begin next week in Congress. Obama has said a number of times that the problem with the deficit isn’t spending, Republicans see it otherwise. At 9:30 the DJIA opened +52, NASDAQ +22, S&P +8. 10 yr at 9:30 -11/32 to 1.90% +4 bp and 30 yr FNMAs -15 bp, Govvies -24 bp. At 10:00 Nov wholesale inventories was expected 0.3%; as reported inventories increased 0.6% frm Oct, Oct revised lower. Final sales up 2.3% for the month. At 1:00 Treasury will sell $13B of 30 yr bonds to complete this week’s borrowing. Yesterday the 10 yr auction was not met with strong demand. The day is starting about the way markets have acted through the week. Unlikely there will much change now through the rest of the day. Everything is somewhat on hold until the debates start again next week in Congress with the Administration over the debt ceiling, entitlement reforms and potential spending cuts. Interest rate markets remain technically bearish, any rallies should continue to be used to lock in rates. While bearish, we still hold that interest rates are not likely to increase much more, possibly 2.00% on the 10 yr over the next month or two. The risk of increased rates is much higher that the risk for lower rates at the moment. Although the Dec FOMC minutes indicated the Fed is now debating how the Fed will exit its easing moves; the Fed is still buying at the same rate as last year; $45B a month of MBSs and $40B of long dated treasuries. Fed buying will continue to support the bond market, keeping interest rates from increasing much from present levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Once again this morning markets started unchanged from the day before. There is simply not much to trade on with Congress out and no economic data this week (weekly jobless claims tomorrow). Scanning the news wires this morning didn’t reveal anything of consequence that might motivate traders or investors. Interest rates have moderated from the strong selling last week but still hold a bearish bias based on our technical models. If we are to expect additional price gains it will require some driving news; that doesn’t look likely this week. The weekly MBA mortgage applications report out early this morning was better than what had been the case the last two weeks with shortened weeks and holidays distorting data. The overall composite index increased 11.7% frm the prior week that saw a decline of 21.6%. Purchases increased 10.0% frm -14.8% previously; the refinance index +12.0% after being down 23.3% last week. These movements are too volatile to make assessments on underlying trends. Rates moved a bit higher in the week with 30-year mortgages for conforming loans ($417,500 or less) rising three basis points to 3.78%. Yesterday began the Q4 earnings season with Alcoa leading the way as always. The company’s report beat analysts’ estimates; sales fell to $5.9B from $5.99B, beating the $5.6B average of 11 estimates. Aluminum prices are rising as demand in China and the U.S. increases while record amounts are being shut away in warehouses as part of financing deals. The better report is causing the early trade in stock indexes to be better so far. This afternoon at 1:00 Treasury will auction $21B of 10 yr notes. The demand will be closely watched after the recent increase in the rate on 10 yr notes. Last month the 10 yr note rate was 1.70%, 1.86% this morning. If the demand is weak the potential of additional selling is possible. At 9:30 the DJIA opened +46, NASDAQ +10, S&P +6. 10 yr note at 9:30 +1/32 1.87% unch; 30 yr MBSs +3 bp. The bellwether 10 yr note at 1.87% is one basis point above its first technical resistance at 1.85%; if it closes below 1.85% the next, and more important resistance is at 1.80%. 30 yr FNMA 3.0 coupon has minor resistance at 104.49, 8 bp frm present price; the more significant resistance is 104.81. We continue to suggest locking in rates on rallies; the outlook for substantially lower rates isn’t favorable now. Net week Congress and the Administration will be back to tackle a number of very serious issues; the markets will likely experience increased volatility after the very quiet week this week.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Another quiet session so far this morning. There is no news to move markets with Congress out this week; the battles over the debt ceiling, entitlements and revenue increases have yet to get under way. Interest rate markets are slightly better in early trade; the 10 yr note rose to 1.97% last week on the FOMC minutes but unable to crack 2.00% the yield has drifted back to 1.88% at 9:00 this morning. Mortgage rates a little better this morning, but overall the bond and mortgage markets have little to think about so far this week. This afternoon Treasury will start 3 days of auctions with $32B of 3 yr notes; tomorrow’s $21B 10 yr note will be closely watched for the level of demand after its yield has increased 20 basis points since the Dec auction. Recent auctions have not seen strong demand with markets expecting interest rates will increase over time. Economic confidence in Europe is improving; an index of executive and consumer sentiment rose for a second month to 87 from 85.7 in November, the European Commission in Brussels said today. Economists had forecast an increase to 86.3. In the most recent report Germany’s business confidence also increased. However, German factory orders declined. Europe’s economy still struggles with recession; although there hasn’t been any headlines on the debt crisis, the crisis hasn’t been alleviated. Today starts the earnings season; at 4:00 this afternoon it is kicked off with Alcoa, always the first to report. 4th Q earnings may lag Q3 but should show decent earnings and guidance. The season lasts for about three weeks. In the absence of anything else this week traders will likely pay a little more attention to the reports. At 9:30 the DJIA opened -20, NASDAQ -1, S&P -2. The 10 yr note yield at 9:30 1.88% -2 bp; 30 yr MBS price +12 bp frm yesterday’s close. As expected, after the swift increase in interest rates last week, markets are bouncing back somewhat. Technically the rate markets became oversold on the reaction to the Dec FOMC minutes released last week, the reaction was magnified as rate markets had already turned negative. It was kind of the last straw for investors still holding big long positions. The 10 has resistance at 1.85% now, just two basis points lower than where we are now.

Mortgage Rates

Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets started a little better this morning; both markets technically overdone, bonds oversold, stocks overbought. That said, neither trend shows any evidence of reversing, just some retracements. There are no economic releases today, and not much for the week. Treasury will auction $66B of notes and bonds beginning tomorrow with $32B of 3 yr notes, Wed. $21B of 10s, Thurs. $13B of 30s. Friday’s Dec employment report was OK but not much indication that employment will increase much in the months ahead. The tepid data has taken some of the fear out of the bond market that the Fed will end its QE easing’s anytime soon. Last week’s FOMC minutes shook traders and investors, there was a lot of discussion about when the Fed should start to withdraw. Until those minutes were released there had been little concern in markets that the Fed was increasingly debating its eventual withdrawal. Last week’s sharp spike higher in interest rates took markets by surprise, sending the 10 yr note yield up 20 basis points and MBSs about 10 bps increase. This week we believe rate markets will recover a little; the 10 hit 1.97% at one point Friday before closing at 1.90%. 2.00% should hold the increase; there is still the debt ceiling, entitlements, and spending cuts that will keep markets edgy. The recent strong rally in the stock market is also a little overdone at this time. We think the key indexes will back off some but as with the bond market, we don’t expect a trend change. At 9:30 the DJIA opened -55, NASDAQ -12, S%P -4. The 10 yr note unchanged at 1.90%. 30 yr MBSs -2 bp. Most of the momentum in stocks and bonds last week came from the FOMC minutes. The next FOMC meeting isn’t until Jan 30th, in the meantime Fed officials are likely to attempt softening the Dec minutes. On Saturday Fed Vice Chairman Janet Yellen said that communication of policy aims plays a “big role” in supporting the economy now that the central bank’s benchmark interest rate is close to zero. Philadelphia Fed President Charles Plosser said the same day that the central bank should take the steps necessary to ensure inflation stays near its goal of 2%. Even after the huge increases last week we continue to believe that rates won’t increase much more in the short term. Consumers however should not be expecting interest rates will decline much, and should be encouraged to take advantage of price improvements now. Today kicks off earnings season for Q4; so far today the equity market is weaker ahead of the rash of earnings. At 4:00, as always, Alcoa starts the three week period of earnings after the markets close tomorrow.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Normally after 4:00 pm each day markets do not move much into the 5:00 close; yesterday additional selling after 4:00 pushed prices down another 16 bp frm levels we recorded on the 4:30 report. On the day yesterday 30 yr FNMA prices plunged 69 bp, GNMAs -72 bp, both 13 bp lower than at 4:00. This morning before the 8:30 Dec employment report 30 yr prices were down another 31 bp frm the close yesterday. The Dec employment report at 8:30 was about in line with estimates. Non-farm jobs increased 155K, non-farm private jobs +168K. The unemployment rate at 7.8% +0.1% frm Nov. The initial reaction in the MBS market improved the price by 20 bp but still -11 bp frm yesterday’s close. (see below for 10:00 levels). Nov non-farm jobs were revised frm +146K to +161K; Nov non-farm private jobs were revised frm +147K to +171K. Average hourly earnings climbed 2.1% from December 2011, to $23.73, the biggest gain in a year. Factory payrolls increased by 25,000, the most since March. Retailers decreased staff by 11,300. Construction companies added 30,000 workers, the most since September 2011; much of the increase due to Sandy. Government payrolls decreased by 13K in December, the third straight month of declines. Service sector jobs were up 109K. The massive selling yesterday was triggered by the FOMC minutes for the Dec 13th meeting. Investors already unwinding the long bond positions established over the past two years, were surprised that the minutes indicated a major discussion within the FOMC focused on when the Fed should back away from its QE easing’s. There were a number of members that were debating the Fed’s exit by the end of 2013. Markets were floored, the overwhelming belief has been the Fed would continue buying MBSs and treasuries well into 2014. FOMC minutes can at times be mis-leading, that may be the case this time; however as we have noted many times here, investors were already seeing the end of the long bond market rally---moving out of safety and back into risk assets (stocks). The rate markets were moving higher in rates, add the FOMC surprise and the flood gates opened. Volatility today in the bond and mortgage markets. At 9:30 the DJIA opened +13, NASDAQ -2, S&P +2. 10 yr note +1/32 at 1.92% after increasing to 1.97% earlier. 30 yr MBS p[rice /2 bp after being down 31 bp earlier. At 10:00 two data points; the Dec ISM services sector index, expected at 54.5 frm 54.7, the index increased to 56.1 the best since Feb 2012. Nov factory orders were expected +0.3%, as reported orders were unchanged. There was no initial reaction to the data. The 10 yr came close to 2.00% this morning but is slightly better now. There should be little doubt now that the long bond and mortgage markets rallies is over. Technically however, the bond market is very oversold on a near term basis and some improvement isn’t out of the question. Any price improvements now should be used to lock in mortgage rates. We believe 2.00% will hold the 10 yr increase for a while but it is not likely the 10 will fall much; best case 1.75% as we see it now. Price volatility will likely continue to be high with big swings on and news.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the bond and mortgage markets were slightly better after selling of treasuries yesterday and the huge rally in the stock indexes on relief Congress got around to keeping taxes from increasing(although SS taxes will increase by 2.0% after two years of lower taxes). It didn't last; at 8:15 ADP Dec private jobs were widely expected to have increased about 150K, as reported Dec private jobs increased by 215K, the biggest monthly gain since last Feb. Adding more strength to the job markets ADP revised Nov private jobs from +118K to +148K. At 8:30 weekly jobless claims were expected at about363K, claims increased to 372K according to the Labor Dept. Last week’s claims were reported at 350K, in this report last week was revised to 362K. Seasonal factors and special factors are distorting the data recently. The 4 wk average at 360K is about 50K less than last week’s average; that isn’t realistic based on the claims data. Continuing claims are also being distorted though trends here also point to improvement. Continuing claims in data for the December 22 week did rise 44,000 to 3.245 million but the four-week average of 3.224 million is roughly 90,000 below the month-ago trend. The BLS is having to make estimates of its own due to missing data from state offices, many of which have been closed for the holidays. Though trends in this report are favorable, there's too many distortions at play to make this report useful as a fore casting tool for tomorrow's employment report. The weekly MBA mortgage applications, also a distorted report, showed the composite index -21.6%, purchases index -14.8% and re-finance index -23.3%. Because of methodology issues surrounding the holidays, the latest data compare the two weeks ended December 28 against the December 14 week. This report is not meaningful for a gauge on the housing sector. Markets still digesting the Cliff legislation. After the strong rally in the stock market yesterday and more selling in the bond and mortgage markets, and after this morning’s overall better employment reports, at 9:30 the DJIA opened -13, NASDAQ -5, S&P -1. The 10 yr note at 9:30-1/32 at 1.84% unch; 30 yr MBSs Now that the preliminaries are over (the Cliff), the next few months Congress and the President will move to even more difficult decisions. Yesterday Moody’s commented that the agreement didn’t do enough to reduce the deficit. Moody’s saying if Congress doesn’t do more it may lower US credit ratings following S&P’s downgrading. The debt ceiling is coming rapidly, at the end of Feb according to the latest estimates Treasury will not have enough money to pay our debts unless the debt ceiling is increased. On March 1st the across the board spending cuts a part of the Cliff that was deferred, are going to kick. On March 27th, according the WSJ, the government will shut down unless Congress approves funding for government operations through the end of Sept (the end of the fiscal year). We are headed again to alas minute showdown and continued market volatility. The increase in taxes for the wealthy that was passed by Congress is relatively meaningless; estimates are for increased revenue of $737B over the next 10 yrs. That is about $73B a year, the recent four years of annual deficits have been about $1 trillion a year of over spending; not much help. The 10 yr note, director for all long term rates, is at its last solid resistance at 1.85%, if it doesn’t hold look for the note rate to increase to 1.90%, then 2.00%. Technically the 10 yr, 30 yr and 5 yr notes areall bearish; 30 yr MBSs also bearish, trading under the 20 and 40 day averages(prices) but so far has held its 100 day average. MBSs are not quite as weak as the 10 yr based on technical indicators; nevertheless MBSs will track along with the note. If markets hold support levels any improvements now should be used to lock in mortgage rates. We continue to believe the low interest rate markets of a few months ago will not likely to be seen again.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A strong relief rally this morning on the half-baked deal to avoid tax increases and increase taxes on dividends and capital gains. The deal took until the last minute to get done but left all the serious issues to another day; what Congress and this Administration does best----push it down the road. Early this morning the DJIA up over 200 points in the futures markets; the 10 yr note yield at 8:45 at 1.85%, up 9 bp frm Monday’s close and on its last technical support level. The House of Representatives’ 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600B in tax increases and spending cuts that would have started taking effect yesterday. President Barack Obama said he will sign into law the bill undoing tax increases for more than 99% of households as Republicans vowed to fight him for spending cuts in exchange for raising the debt ceiling. The Cliff was avoided. Next up will be serious debate over the debt ceiling that is now $16.4 trillion. Treasury is theoretically out of money now but operating on “emergency” funding until mid-February. The president is already on record saying he won’t negotiate on the debt ceiling that if not increased will automatically set up huge spending cuts. It is going to be another two months of angst for markets. Mortgage rates up this morning, not as much though as in the treasury market. At 9:00 MBS 30 yr prices down 35 bp while the 10 yr note is down 73 bp with its yield up 9 bp after increasing 5 bp on Monday. At 9:30 the DJIA opened +93, NASDAQ +74, S&P +17; the 10 yr note yield at 1.84% and 30 yr MBSs -25, 15 yr mtg price +2 bp. Two data points at 10:00 this morning; the Dec ISM manufacturing index, expected at 50.5 frm 49.5, was fractionally better at 50.7. Nov construction spending expected up 0.6%, declined 0.3%. Although most all focus this morning in the markets is on the passage of the Cliff; this is employment week with Dec employment data on Friday. Early estimates for non-farm jobs in Dec +150K, non-farm private jobs +157K with the unemployment rate at 7.8% +0.1%. ADP will be out with its estimate on private jobs out tomorrow is for an increase of 150K. Technically, the 10 yr note must hold at 1.85%, the level that has held four previous times when rates increased. An increase over 1.85% will push rates even higher, to 1.95%. The MBS markets are worse today but are doing better than treasuries as investors are getting out of treasuries and into higher rates of returns. Keep in mind the Fed is still there buying $85B a month of treasuries and MBSs. Expect increased volatility levels in the coming weeks with more serious debates coming over the debtceiling and sequesters on spending cuts due on the 1st of March, like the fiscal Cliff debates, we won’t expect any agreements until the last minute. What we have endured until now is only a preliminary to the main events.