Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock index futures trading early this morning were fractionally better, the 10 yr note yield as a result started a little higher with early MBS trade about unchanged. Again today, no key economic reports; the main focus today will be this evening’s State of the Union address. What will he say, how will he phrase his growth plans, how will he confront the increasing deficit, what will he say to counter the Republican demands that no taxes be increased? The Republican response will be delivered by Sen. Marc Rubio. A lot of questions that will dominate thinking through the day; by the end of the day today we expect interest rates and the stock market to be close to unchanged. At 9:30 the DJIA opened +10, NASDAQ -1, S&P +1; 30 yr MBS price -9 bp with the 10 yr note yield at 1.99% +3 bp. Fed Vice-Chairwoman Janet Yellen speaking yesterday defended the Fed’s continued easy money policies calling the unemployment rate too high and that it is “entirely appropriate” for the bank to focus on employment. Not surprising, Yellen is considered one of the doves at the FOMC. There is no indication the Fed is preparing to end the QE, purchasing $85B of treasuries and MBSs each month. There is discussion within the FOMC about how, when it is appropriate, the Fed will engineer its withdrawal; not likely this year. According to data from Cantor Fitzgerald total agency MBS production for Jan. was $140.5BB, up $28.1BB (25%) vs. last month. The increase in production was due to low level of production in Dec. as originations pushed up as much of their supply as possible to Nov. to avoid the G-fee hike that started Dec. 1st. 30yr production was $101.9BB, up 23% month-over-month while 15yr production was $25.8BB, up 25% vs. Dec. The Fed is buying $40B of MBSs each month. The National Federation of Independent Business released its optimism index this morning; expected at 89.5 frm 88.0 Dec, was at 88.9. NFIB said “still one of the lowest readings in the survey’s 40 year history”. “All that happened in the “cliff negotiations” was that taxes went up, 2 percent for everyone as the temporary cut in the FICA tax was restored and the marginal rates for the “rich” ($400k and up) were raised. Obama Care taxes and costs were off the table for discussion. There were no real cuts in spending, just the recognition that some spending was slowing as it was programmed to do. The real sequestration cuts were kicked down the road again. The message to the private sector was the same – management incompetence, no leadership. So, “uncertainty” as to the management plan to get USA Inc. back on a sound fiscal track was not resolved. The fourth quarter decline in GDP was not a confidence builder either. Although a lot of the decline was attributable to events not likely to be repeated any time soon (government spending reductions and a sharp reduction in inventory build), growth would still have been about 2 percent without those hits –nothing good happened to offset them. And, the decline in imports is highly correlated with a decline in GDP. Business investment and housing looked OK, consumer spending, especially on non-durables and services was not strong. The Fed continued its liquefaction of assets in the economy, building profits at the big banks but condemning savers and retirees to lousy returns for years to come. It was hard to find good news, globally or nationally.” 11:30 has KC Fed President Esther George speaking at the U. of Nebraska; at 1:00 Dennis Lockhart, Atl. Fed Pres. in Madrid. This afternoon at 1:00 Treasury will auction $32B of 3 yr notes at its quarterly refunding. Tomorrow $24B of 10s and Thursday $16B of 30s. The auctions, particularly tomorrow’s 10 yr note, will put some additional pressure in the treasury market. IN the absence of anything more significant traders will approach the auctions with caution. At 2:00 Treasury is scheduled to report the January budget details; estimates are for the budget short-fall to be just $2B. Over two weeks now that the 10 yr note rate has traded in a 6 bp range based on closes; MBSs also confined in a narrow range. The stock indexes also marking time the last few sessions. Still looking for the elusive correction in stocks, but so far all there has been is no increases, there hasn’t been any sustained selling in the indexes. Market should trade quietly today ahead of the State of the Union at 9:00 this evening. Treasuries and mortgages are still holding bearish technical readings.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 9:30 US tock indexes were trading higher, at 9:30 however the DJIA opened down 18, NASDAQ -1 and S&P -2. The 10 yr note early this morning down 8/32 at 1.98% but the softer open in the stock market the 10 was unchanged. 30 yr MBSs also abut unchanged from Friday’s close. There are no economic reports today. Treasury will auction $72B of notes and bonds beginning Tuesday. The State of the Union is on Tuesday evening. Key economic data hits on Wednesday through Friday. Jan retail sales, weekly claims, Jan industrial production and factory use are the data we will get. The equity markets continue to hold and edge higher, as long as stock indexes continue to resist selling the bond and mortgage markets will remain in a narrow range with little change in interest rates. The 10 yr note has solid support when its yield climbs to the 2.00% area; moving above it on a couple of occasions recently but no follow-through. There has been virtually no change in US interest rates since the end of January. Pres. Obama’s State of the Union address, according to reports, will unleash a number of executive orders and decisions on health care and a number of programs. Congress and the Administration face the March 1st deadline on the sequestration; so far nothing is happening, at least nothing that has captured much attention. Meanwhile according to the WSJ article businesses are becoming increasingly concerned about the strength of the economy going forward in 2013. Q4 2012 advance GDP was -0.1%, however we expect the preliminary report on the 28th of this month will be revised to show some growth. The Fed will continue to buy $85B of MBSs ($40B) and treasuries each month. With the economy still just stumbling along and Obama Care beginning to bite on small businesses; and the debt issues plaguing recovery, we are holding our view that interest rates will not increase much, possibly 2.25% by the end of the year. Meantime, until there is selling in the stock market rates won’t decline. EU finance ministers are meeting today to work out a bailout for Cyprus. The Group of 20 finance ministers are scheduled to meet in Russia starting Friday. Mix in the State of the Union tomorrow evening, Treasury’s $72B of auctions this week and no supportive economic reports; there is no reason today for the stock market to improve or interest rates to change much. The stock market remains overbought and ready to retrace, the obvious question is when. Until the stock market retreats US interest rates are not likely to decline much. Pope Benedict XVI is going to abdicate the papacy. The first time in 600 years a pope has quit. Health reasons are the reason according to the Vatican. Curious though there has been no warning, sickness of substance or any hint to would resign. Not a market mover, but thought provoking for Catholics.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early trade this morning was generally flat in stocks and bonds. This week has seen hardly any movement US financial markets, no solid economic data and not much coming from Washington the sequester debates. The 10 yr note yield has stayed in a 6 bp range (closings) and 30 yr MBSs as of 9:00 this morning down just 18 bp frm last Friday’s close. This morning at 8:30 Dec trade balance was somewhat a surprise, the deficit came in at -$38.5B, much lower than the $-42.5B expected. The narrowing gap was led by record exports of petroleum. The lower deficit in Dec is likely to show up again at the end of Feb when we see the preliminary Q4 GDP revisions; the advance report was a -0.1% growth, with lower deficit the revision will likely show that the economy actually did see growth in Q4. For all of 2012, exports climbed 4.4% to a record $2.2 trillion. Imports advanced 2.7% to $2.74 trillion. That pushed the trade gap last year down to $540.4 billion from $559.9 billion in 2011. Prior to the Dec trade data at 8:30 the stock indexes were unchanged; after the report indexes improved into the 9:30 open. At 9:30 the DJIA opened +24, NASDAQ +12, S&P +4; 10 yr note at 1.97% +1 bp and 30 yr MBS -8 bp. The East coast is headed for a blizzard later today, as much as 3 feet of snow with 60 MPH winds. Airlines are closing, rapid transit in Boston closing at 3:30 today. Not a market mover though, since there isn’t much news there is a lot of talk about it. So far the NY exchanges are saying they will stay open regular hours today. Currency wars continue; a few weeks ago the Japanese prime minister said Japan would make moves to weaken the yen, since then the yen has declined against the dollar frm 78 to 94 yesterday (78 yen per dollar to 94 yen to the dollar). This morning the yen has increased the most in a day in almost two years on comments frm the prime minister that the planned decline for the yen has been too quick. These days currency wars are running at flank speed as every country is trying to weaken their currency to gain advantages for their exports. The Fed is printing money at warp speed, Japan and Europe also deflating their currencies. At 10:00 Dec wholesale inventories were expected to be +0.7% frm +0.3% in Nov; as reported inventories up just 0.1% with final sales unchanged against expectations of sales being up 0.6%. No immediate reaction to the report. Treasuries and MBSs remain in very narrow ranges; the 10 yr has near term resistance at the 1.95% area with its 20 day average increasing every day, today at 1.93%. 30 yr MBSs closed at 103.50 on Jan 25th, this morning at 10:00 at 103.23 -27 bp in over two weeks; essentially unchanged in the period. There is still the view out there that the stock market is overdue for the correction we continue to talk about, so far talk is all there has been. Some pundits calling for a 10% decline in the key indexes; we don’t agree with that much fall. There is so much money resting on the sidelines wanting to get in that 10% doesn’t seem very likely. The other thing we heard yesterday from one of the mortgage market commentators is that the 10 10 yr note will decline to 1.50%, again we don’t agree; when stocks do retreat the beast we can see for the 10 yr is a decline to 1.75%; furthermore if that does occur it will not last long at that level. Be careful of extreme estimates from those whose forecasts are too optimistic. Makes for comforting reading, but unlikely in our view at the moment.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Markets started quietly this morning with interest rates continuing relatively unchanged over the past two weeks. The stock indexes in pre-opening trade were hardly changed from yesterday’s unchanged levels. 8:30 data didn’t generate much response in either the bond or stock market. Weekly jobless claims were expected to be 6K were down 5K at 371K; last week’s claims revised from 36K to 371K. Unemployment claims still holding at what many see as not much improvement in the labor markets. Claims above 350K seem to be the level that analysts think is the pivot point for improvement. The Labor Dept. said there were no unusual effects in this report and no states were estimated. Recent claims data were considered distorted due to quarterly revisions and weather issues that required Labor to use estimates for some states. The four-week moving average of jobless claims, a less- volatile measure, fell to 350,500, the lowest since March 2008, from 352,750. Q4 productivity was expected down 3.1%, as reported it declined 2.0%, the decline was the most in the last two years. Q3 productivity was +3.2%. When productivity falls unit labor costs increases; Q4 unit labor costs were thought to be up 3.1%, as reported costs increased 4.5%. The decline in productivity may imply employers have run out of methods to keep frm new hires. In Q3 unit labor costs were +2.3%. At 9:00 the DJIA futures were -1; the 10 yr note unchanged at 1.96% while 30 yr MBS prices were -1 bp. All markets flat at 9:00. At 9:30 the DJIA opened -19, NASDAQ -2, S&P -1; 10 yr note 1.97% unchanged while 30 yr MBS prices were unchanged from yesterday’s close. Since the end of January the 10 yr note based in a closing basis has traded in a 6 bp range. The stock market since the end of January hasn’t moved much, the DJIA unable to break above 14K but also able to hold without seeing any significant selling. We still look for a correction in the bond and mortgage markets that will push interest rates down a little, however the longer outlook will remain bearish as long as the economic outlook and the stock markets continue to improve. Most of this month’s attention will be on discussions about the sequestration coming on March 1st. $85B of mandatory spending cuts set up by Pres. Obama back in 2011 to get the debt ceiling increased are going to kick unless the parties can agree on another ‘push the can down the road again’ deal. Much of the automatic cuts will be on defense; even Republicans agree that is a serious cut but so far the party is standing firm on no tax increases that Democrats and Obama want. Investors may sit out buying this month as the debate heats up through the month.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets opened a little better this morning with US and Europe stock markets lower. The DJIA appears to be finding it difficult to break and hold above the psychological 14K level; it made it on Monday, sold off Tuesday and then rallied yesterday but didn’t make over 14K. Treasuries and mortgages continue to be tied to how equity markets traded; investors and traders exiting the fixed income markets into equities where returns are better and are expected to continue to improve over the year. There are no economic reports today; this week is skimpy on data. The only data out this morning; weekly mortgage applications. Applications increased 3.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 1, 2013. The Market Composite Index, a measure of mortgage loan application volume, increased 3.4% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 4% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier was at its highest level since the week ending May 7, 2010. The unadjusted Purchase Index increased was 16% higher than the same week one year ago. The refinance share of mortgage activity decreased to 78% of total applications from 79% the previous week and is the lowest refinance share observed since early July 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.73% from 3.67%, with points increasing to 0.43 from 0.42 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for seven of the last eight weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.96% from 3.95%, with points decreasing to 0.38 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.53% from 3.48%, with points increasing to 0.38 from 0.33 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.00% from 2.95%, with points decreasing to 0.33 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.72% from 2.60%, with points decreasing to 0.30 from 0.33 (including the origination fee) for 80% loans. The EU is climbing back into focus after months that the region seemed less a concern to global markets. Political uncertainty is increasing in Italy and Spain over recent reports of bank scandals in Spain and political scandals in Italy. On the more positive outlook in the EU; German factory orders rose in December as euro-area demand jumped, adding to signs that the region may be starting to recover from recession. The 17-nation euro economy is starting to improve after the sovereign debt crisis pushed it into recession last year. Spanish house prices halted a three-year decline in January and euro-area economic confidence rose to a seven-month high. Investors awaiting tomorrow’s ECB meeting also slowing things down in global equities. Pushing stocks higher recently has been stronger than expected earnings in Q4, although Q4 GDP declined 0.1% businesses continued to do well by reducing expenses and resisting hiring new employees. At 9:30 the DJIA opened -61, NASDAQ -11, S&P -6. 10 yr note 1.97% -3 bp and 30 yr MBSs +18 bp frm yesterday’s closes. Treasury this morning announced the details of next week’s quarterly refunding; the total is the same as the last few quarterly refunding. $32B of 3 yr notes next Tuesday, $24B of 10 yr notes next Wednesday and $16B of 20 yr bonds next Thursday. Nothing unusual about it. The remainder of the session will be directed on how the stock market performs. US 10 yr note rate has been well-contained between 1.95% and 2.02% for almost two weeks. Unable to find traction for any corrective rally, but equally finding support when the 10 hits the 2.00% area. 30 yr MBSs also stuck as would be expected as treasuries sit quietly. Rate markets remain bearish in the wider perspective but as noted many times here, overdue for a technical correction. The same is true on equity markets, overdue fort a pullback but the wider outlook is strongly bullish at the moment. That there has not been any pullback in stocks is indication investors are overwhelmingly bullish, so far any attempt to fallback has been seen as a buying opportunity, implying that any correction will be minor at best---if at all.

Mortgage Rates

Mortgage Rate Update Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the 10 yr note and MBSs were weaker; by 8:30 however with stock indexes seeing selling the 10 and MBSs were improving. 2.00% for the 10 is still holding on selling, although the note has traded over 2.00% it hasn’t been much and when it has moved slightly above 2.00% it hasn’t had any follow-through. We still hold that the rate and stock markets are overdue for a correction; is this the day it starts? We are not willing to go that far since any attempt to push stock indexes lower has so far failed to gather any momentum. It isn’t a case that we think markets are wrong, it’s just that both markets need to correct in order to continue to move higher on rates and stocks. It is all technical that we expect some retracements. This week there isn’t much in the way of data to motivate markets. Last week the economic calendar had a number of data pots, most of which were seen as bullish for the economy. Since the year began there hasn’t been much from Washington; the suspension of the debt ceiling until May and possible pay suspensions for either house that doesn’t pass a budget by April 15th. Once the debates heat up again the likelihood of the present enthusiasm will wane somewhat. The economy is improving but in our view not as strong as what the stock markets is presently discounting. More comments from the Fed; James Bullard, St Louis Fed Pres. said Last Friday in an interview that he expects growth in the world’s biggest economy to gain enough momentum to let the central bank reduce the pace of bond-buying as early as the middle of the year. As I recall that is the first time any Fed official has actually put a specific timeline for the Fed to begin withdrawing. Bullard isn’t Bernanke though and within the Fed the majority still think continuing the $85B of purchases each month should go on longer than what he is saying. Nevertheless what cannot or should not be overlooked; the Fed is increasingly talking about an end strategy. Bullard did back the Federal Open Market Committee’s decision last week to continue purchasing securities, the third round of a policy known as quantitative easing or QE. Treasury will release today its borrowing estimates for the current quarter and the three months beginning April 1. The department has resorted to “extraordinary measures” to continue funding the government after reaching its statutory debt limit. The House of Representatives voted Jan. 23 to suspend the $16.4 trillion federal debt ceiling until May 19. At 9:30 the DJIA opened -73, NASDAQ -14, S&P -7. 10 yr note at 1.99% -3 bp; 30 yr MBSs +20 bp. The only report today; Dec factory orders at 10:00 were thought to be up 3.0%, as reported inventories were up 1.86% and Nov inventories originally reported unch were revised to -0.3%. No reaction to the report. Is today the day markets begin the corrections long overdue? So far the stock indexes are lower but a few hours isn’t enough to call it. When the pullbacks begin in earnest the 10 yr note yield should decline about 10 basis points to 1.90% and 30 yr MBSs also down 10 bp in rate. To turn the bond market frm bearish to bullish the 10 yr would have to drop to 1.80% which we don’t expect. As long as the outlook for the economy remains as it currently is (improving), there is little likelihood rates will fall much. That said, as we have noted previously, as long as Markets continue to believe the Fed will continue its QE, interest rates are not likely to increase much more than where they trade today. Last week Commerce said GDP actually declined 0.1% in Q4 2012; it was largely due to a decline in government outlays and a smaller gain in inventories that subtracted a combined 2.6% points from growth.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com January unemployment rate was higher than expected at 7.9%, but job growth was better than expected with sizeable revisions to Nov and Dec data. Jan non-farm job growth +157K, private job growth 166K; Nov non-farm jobs were revised from +161K to +247K and Dec jobs were revised from +155K to +196K, a combined total of 127K more jobs than what had been previously reported. The unemployment rate was expected to have increased to 7.8% frm 7.7% in Dec. The median forecast of 90 economists surveyed by Bloomberg called for an advance of 165,000 in January payrolls. Projections ranged from gains of 115,000 to 230,000 following an initially reported 155,000 increase in December. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- stayed at 14.4%. For all of 2012 non-farm jobs increased by 2.2 million jobs. Prior to the 8:30 employment report the 10 yr yield had increased to 2.03%, by 9:00 the rate stood at 1.95%; 30 yr MBSs at 9:00 were up 21 bp after trading weaker on the release of the employment data, at 8:20 -18 bp. The stock indexes at 9:00 were on fire with the DJIA +109. Treasuries holding well on the higher unemployment rates while stocks are improving on upward revisions in job increases. Kind of peculiar, interest rates holding well in the face of a strong opening in the equity market at 9:30. At 9:30 the DJIA opened +65, NASDAQ +20, S&P +7. The 10 yr note 1.93% -5 bp; 30 yr MBS prices +40 bp. More data this morning; at 9:55 the U. of Michigan consumer sentiment index was expected at 71.5 frm 71.3; the index came at 73.8, the best since last fall when the index was in the 80s. At 10:00 Jan ISM manufacturing index expected at 55.5 frm 54.0, as reported the index hit at 53.1, the employment component at 54.0 frm 51.9. Dec construction spending was expected up 0.8%, as released spending increased 0.9% and Nov spending originally reported at -0.3% was revised to _0.1% US interest rates are better this morning on the Jan payrolls being less than estimates at 157K against forecasts of about 185K and the increases in the unemployment rate to 7.9% against estimates of 7.8%. Prior to 8:30 the 10 yr note yield was at 2.04%. Stocks are rallying because there were upward revisions to Nov and Dec job gains. The bond market has found good support at the 2.00% level; although the level has been breached a couple of times, 2.00% is holding well and supporting better mortgage prices so far. As we have noted, the bond and mortgage markets have been very oversold from a technical perspective, looks like 2.00% will hold and the retracement we have been looking for may be at hand. That said, we don’t expect there will be a huge decline in interest rates, the longer bearish outlook should continue.