Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally quiet in early activity this morning in the bond and mortgage markets; trade in the stock index futures at 9:00 pointing to a better open at 9:30. In Europe stock markets are weaker, continuing to decline on the renewed debt crisis that surfaced in tiny Cyprus. In an effort to get financial assistance frm the ECB and IMF the country announced it would simply take money frm bank deposits; the plan endorsed by the ECB and IMF. The original idea was to take 6.75% of customers’ accounts under 100,000 euros and 10% of deposits that are over 100K euros (much of it money frm Russian depositors). After protests raged against the “theft” the country’s parliament delayed the vote, considering taking less, if anything, from savers that have less than 100K euros. Banks in Cyprus remain closed until Thursday. According to estimates, if the government actually does raid accounts the amount is about 5.8B euros ($7.5B). EU finance ministers appear to be back-tracking on the demand to raid small accounts under 100K euros. Feb housing starts and permits, the only data today; starts were up 0.8% to 917K annualized units, less than expected but offset by increased starts in January from what was initially reported. Jan starts originally recorded down 8.0% were revised to -7.3%, in terms of units the revision totaled 910K frm 890K originally reported. Taken together the two months are in line with forecasts and continue to confirm the sector is improving. Feb building permits were stronger than estimates at +4.5% to 946K units, units were expected at 925K. Stock indexes gained a little more on the data. The bellwether 10 yr note is at its 40 day average, so far unable to break below it. 30 yr MBS price also at a critical technical level, its price unable to move above its 20 day average. At 9:30 the stock market opened better; the DJIA +38, NASDAQ +10, S&P +4; the 10 yr note at 9:30 1.94% down 1 bp and 30 yr MBS price +6 bps. Today the FOMC meeting gets underway; there won’t be any news though until tomorrow afternoon at 2:00 with the policy statement, then at 2:30 Ben Bernanke will hold his press conference. Expect questions from reporters to range frm the renewed debt concerns in the EU to details on the economy and plans to exit QEs. The Fed is not about to exit the $85B of monthly purchases of treasuries and MBSs until at least the end of the year---if then. While the US economy is improving, the resurrection of the EUs problems will keep the Fed and other central banks accommodative. With little additional news from the EU, and tomorrow’s FOMC policy statement and Bernanke’s press conference, today is likely to quiet with little changes in the bond and mortgage markets. The stock indexes have started better this morning however we do not expect any major changes. In the near term the bond and mortgage markets are looking slightly better; most of the strength however is based on minor moves to safety in US and German bond markets over the uncertainty about Cyprus contagion. Standing on its own Cyprus is a hiccup in the wider perspective; the fear is that if the country actually does take depositors money, other EU countries may also try it. That isn’t very likely, but the concern over it has pushed some money into safety of US notes and German bunds.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Until this weekend the most important event this week was the FOMC meeting on Wednesday. Over the weekend though the euro zone took center stage with debt issues in Cyprus; its banks are teetering on collapse. The plan that emerged calls for taxing all depositors in the banks in the country; the tax calls for 10% tax for deposits over 100K euros and 6.75% on deposits less than 100K euros. After months of little news from the euro zone, it is back now with another crisis that could threaten the euro nation. Taxing depositors to shore banks had been talked about over the years of crisis in the zone, but had always been dismissed. It leaves the question now about other countries in the EU and resurrects the debt crisis that hasn’t gone away even after months of quiet in the zone. Early this morning the stock markets in Europe and here are under pressure and has led to a decline in US treasuries on safety concerns. The overall fear over the plan to tax depositors is fueling concerns over all banks in Europe that deposits may be subject to taxing. At 9:00 the 10 yr note yield down to 1.94% -6 bp frm Friday’s close; 30 yr MBSs +30 bps. The stock indexes at 9:00; DJIA -87, NASDAQ -24, S%P -14. At 9:30 the DJIA opened -97, NASDAQ -36, S&P -14; the 10 yr note 1.94% -6 bp and 30 yr FNMA price +29 bps. By 10:00 the DJIA and NASDAQ have climbed back and cut the initial losses by half from the opening levels. The only data today at 10:00 the NAHB housing market index was expected at 47 frm 46 in Feb, as reported, not a good number at 44, the lowest since last Oct. Somewhat of a surprise as the new home market has been hot based on recent data of new home sales and interviews from a number of CEOs of public homebuilders. No reaction to it. The rest of the day will be focused on the renewed fears frm the EU. The banking crisis in Cyprus, their banks all but in solvent and now taking money from depositors to satisfy the ECB and IMF. Cyprus has 8 million people, about the population of Chicago and on its own no one would pay much attention. The fear for the moment is that depositors in Italy, Spain and other soft southern Europe countries may make runs on their banks fearing the same fate levied on Cyprus. In Germany, the anchor for the euro, political debates increasing about the cost Germany is incurring dealing with one crisis after another. Merkel’s coalition government is not as firm today as it has been over the past few years. The banking crisis in Cyprus is playing into the hands of Germans that want an end to the costs to keep the EU frm unwinding. The Cyprus issue may in the end cause the country to leave the EU, something the IMF and EU officials fear would trigger other exits. It is still a developing issue that is renewing the need for safety into German bunds and US treasuries. Wednesday the conclusion of the FOMC meeting with the policy statement. The Fed is likely to continue saying the economy is recovering slowly, unemployment still too high and that the Fed will continue to buy $85B of treasuries and mortgages each month. We won’t know much about the discussions within the meeting about how and when the Fed will exit until the minutes are released in two weeks.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com European stocks weaker this morning, in early US futures trading markets were relatively unchanged, the 10 yr note -3/32 at 2.04% at 8:30. 8:30 data didn’t move markets; Feb CPI in line with forecasts +0.7% overall, and ex-food and energy +0.2%. Inflation is no problem and attracts little attention in markets. The Empire State manufacturing index was expected at 10, as reported 9.24 frm 10.4 in Feb. Neither data had any immediate impact on markets. Overall CPI at +0.7% was a little higher than thought but not a concern, the increase to 0.7% was mainly due to increases in gasoline prices in Feb; since Feb gas prices have moderated. Gasoline prices climbed 9.1% last month, the biggest advance since June 2009. That drove a 5.4% gain in overall energy costs. The core rate +0.2%, is where the focus always is and it was tame and in line with estimates. The Empire State report was a little disappointing but still held above zero; new orders index fell to 8.2 frm 13.3, the price index at 25.8 frm 26.3 (good) and the employment index declined to 3.2 frm 8.1. If the stock market were not so bullish as it is these days, the Empire State would have pushed indexes lower. At 9:15 Feb industrial production was thought to be up 0.5%, it increased 0.7% the most in three months; January production was revised to unchanged. Frm -0.1%. Manufacturing which accounts for 75% of industrial output increased 0.8%, the 3rd gain in the last four months. Feb factory usage was expect at 77.5%, as reported use of factories was at 79.6% the best since Mar 2008. At 9:30 the DJIA opened -27, NASDAQ +1, S&P -2; 10 yr note unchanged at 2.03% and 30 yr MBS prices also unchanged. At 9:55 the last data this week, the U. of Michigan mid-month consumer sentiment index was forecast at 77.5, as reported the index fell to 71.8, a huge decline and the lowest index reading since Dec 2011 when it fell to 69.3. Until this report the data this morning was, on balance, better than expected but didn’t get any support in markets. The soft sentiment index however triggered additional selling in the equity market and jumped the 10 yr back to 2.00% -3 bp on the day with 30 yr MBS prices up 10 basis points in price frm 9:30 levels. Yesterday the 30 stocks in the DJIA index made another new high, the 10th in a row for the index, yet the broader market as measured by the more significant S&P 500 index still can’t push to a new high. Yesterday the index closed at 1563.23, the high close is 1565.15, so close but not even the most bullish could generate enough interest to break through. This morning the stronger Feb industrial production and factory use were much better than expectations but didn’t influence the markets so far. Today options expire that at times can increase volatility through the day. We still have a bearish interest rate market based on all of our technical models, however the strength of the bearishness has waned in the last week after rates exploded last Friday on the Feb employment report. The level to watch now is 2.06% on the 10 yr note, a close above it will imply more increases. On the other side, there is very strong resistance at 1.95% for the note. Next week the FOMC meets on Tuesday and Wednesday, after the strong Feb employment data and other better than expected reports on the economy what will the Fed think when the FOMC policy statement is released Wednesday afternoon? We expect trade early next week to be rather flat ahead of the FOMC meeting.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages were weaker early on better stock index trading, at 8:30 weekly jobless claims were expected to increase 10K, claims declined 10K to 332K and last week’s claims were revised frm 340K to 342K. Weekly claims for unemployment compensation have been falling for weeks now, there can be little argument that the job market is getting better, slowly and not as quickly as anyone wants, but improving. Until the last few weeks claims had been hanging around the 360K to 370K, now 40K a week less, the lowest level in two months. The four-week average declined to a five-year low. The reaction pushed the 10 yr note to 2.07% briefly and 30 yr MBS prices -28 bp frm yesterday’s close. Stock index futures also gained a few more points on the claims data. Feb producer price index, also at 8:30 was in line with forecasts and estimates; +0.7% overall and ex food and energy +0.2%. Yr/yr overall PPI +1.7% and the core also +1.7% for the last 12 months. Inflation based on the PPI this morning is still well within the Fed’s tolerance range and didn’t generate any additional selling in the bond market---it was all about the weekly claims this morning. European stocks rose to an almost five-year high as policy makers gathered for a two-day summit. EU officials are said to be willing to grant France, Spain and Portugal extra time to bring down deficits. The ECB cut its forecasts on March 7 and now expects the 17-nation euro-area economy to contract 0.5% this year before growing 1.0% in 2014. Last week the ECB left its interest rate unchanged, there were some rumors that the ECB would lower the rate. The Q4 current account deficit unexpectedly declined 1.8% to $110.4B with estimates of -$112.5B. The current account is the total measure of international trade including income payments and government transfers. Q3 2012 account deficit was -$112.4B. For all of 2012, the current-account gap expanded 1.9% to $475B, the widest in four years. Not much of a momentary market mover, the current account data usually excites economists that work on longer range implications to the economic outlook. Yesterday Treasury sold $21B of 10 yr notes at auction, the demand was much stronger than most were expecting; today at 1:00 Treasury will sell $13B of 30 yr bonds. Foreign central banks and foreign investors took almost half of the $21B of 10s, US banks took 30.0% leaving Wall Street dealers with just 22% of it to distribute. At 9:30 the DJIA opened +27, NASDAQ +8, S&P +3; 10 yr note at 2.06% +3 bp, 30 yr MBS prices -31 bps. Is this the day when the S&P 500 index makes its new all-time high? The DJIA has been making new highs now for the last nine days but the broad S&P has struggled; the high is 1565, at 9:30 1558. More key data tomorrow; Feb CPI, Mar Empire Sate manufacturing index, Feb industrial production and factory use and the U. of Michigan consumer sentiment index. The bond market is at critical levels this morning; the 10 yr note trading at 2.06%, a close above that level will be a new high for tis recent increase in rates and set up additional bearishness. The highest yield so far on an interday basis was 2.09% on the initial reaction to the Feb employment report last Friday. Fighting the tape with wishful thinking has not been a good idea for those that still believe interest rates will decline. Although we can expect some improvement when (if) the stock market ever retreats, the problem with that strategy is that rates have continued higher as stock indexes increase; so a correction won’t likely take rates down to levels seen a week ago.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 when Feb retail sales were reported the 10 yr note at 2.00% was -2 bp and 30 yr MBSs were up 6 bp frm yesterday’s close. Retail sales for Feb was expected to be a little soft on concerns the payroll tax increase might continue slow spending seen in January. The estimate for overall sales was +0.6% and when auto sales are extracted, up 0.2%. Sales increased 1.1% and ex-auto sales +1.0%. Feb sales ex-autos and gasoline were up 0.4%. Jan overall sales was revised to +0.2% frm 0.1% and ex-auto sales from +0.2% to +0.4%. The stronger sales report turned markets; at 8:45 the 10 yr note -5/32 at 2.04% +2 bp frm yesterday’s close and 30 yr MBS price down 9 bp frm the close yesterday. US stock indexes were weaker prior to 8:30, at 8:45 back to unchanged. Feb retail was the strongest in the last five months, adding more conviction the economy is improving. The Feb employment report last week also was better than markets were expecting, now retail sales adds to the optimism that recovery is happening quicker than thought. Even the Fed should be surprised with the number; the Fed has continued to say the economy is improving but not as rapidly as retail sales and the Feb employment data has indicated. Eight of 13 major categories in the sales report showed increases last month, led by a 5% jump in receipts at gasoline stations that reflected higher fuel costs. Sales also climbed at building materials outlets, auto dealers and general merchandise stores. Next week the FOMC will meet on Tuesday and Wednesday with the policy statement released Wednesday afternoon; how will the Fed frame the recent firmer data? Bernanke will likely hold that the economy still has soft spots and that unemployment is still too high. The Fed will continue the QE buying of $85B of treasuries and mortgages, in the eyes of the Fed the easing is helping and it will continue for months ahead. US retail sales data didn’t help stock markets in Europe, all three major markets in the region were slightly weaker today on soft industrial production data. Production in the 17 nation euro zone in Jan declined 0.4% on estimates of a decline of 0.1%. Yr/yr production down 1.3%. Europe’s economy struggling and presents a drag on global markets. In China its economy also slowing as the country turns inward toward domestic improvements and away frm relying mostly on exports. Earlier this morning the weekly MBA mortgage applications data; the overall composite index -4.7%, the purchase index -3.0% and the re-finance index -5.0%. The interest rate for 30 yr conforming mortgages increased to 3.81% for 80% loans with origination fees included, an increase of 11 bp frm the previous week and the highest rate since last August. Until last Friday’s employment report 30 yr rates were about unchanged frm the prior week but the strong data sent rates climbing Friday morning. Both the purchase and re-finance indexes the previous week were up 15%. At 9:30 the DJIA opened -4, NASDAQ -0.4, S&P -0.7; 10 yr note at 2.04% +2 bp, 30 yr MBS price -12 bps. Jan business inventories at 10:00 was expected up 0.5%; as reported inventories increased 1.0%, Jan inventories originally +0.1% were revised to +0.4%. The increase in inventories the largest since May 2011. At the January sales pace, businesses had enough goods on hand to last 1.29 months, up from 1.28 months in the prior month and the highest since August. Business sales dropped 0.3%, reflecting declines at factories and wholesalers. Purchases at retailers advanced 0.3% after a 0.4% gain in Dec. At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr auction was somewhat disappointing, the 10 yr is much more interesting as it impacts mortgage rates and long term fixed income investors. The demand will be important, at last month’s 10 yr auction the 10 went 2.04%, the demand last month was somewhat soft compared with previous recent 10 yr auctions. Treasury will report the Feb budget data at 2:00; markets are expecting the deficit for the month at -$205B. By 10:00 this morning the stock indexes were trending lower, unable to improve on the retail sales report. Unless the S&P can make a new all-time high today or tomorrow, it is unlikely to happen until the conclusion of the FOMC meeting next Wednesday. The longer it takes the S&P to make a new high, (it is 16 bp away at 10:00), the more nervous traders will become and in turn may push the stock market down on profit-taking ahead of the FOMC meeting. That said, we do not expect a serious decline in stock indexes which will keep interest rates frm declining much. Any improvement in mortgage rates should be used to lock in critical deals; we don’t believe the bond and mortgage markets will lose their bearish outlooks either fundamentally or technically.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early this morning the US stock indexes were fractionally weaker while markets in Europe are mixed but with little changes frm yesterday. Treasuries and MBSs traded a little better early, but like the stock markets generally flat prior to the 9:30 open in the equity markets. The Feb NFIB optimism index released early today was better than expected, the index was expected at 90.1 frm 88.9 in Jan; as reported the index increased to 90.8. It isn’t considered a first tier data but that it did increase is another report that is better than forecast. Redbook reported solid strength in same-store sales during the March 9 week, at a year-on-year plus 2.7% which is more than one full percentage point above lows in January. Redbook's month-to-month data call not only for a gain in February but now for a gain in March relative to February. At 9:30 the DJIA opened +2, NASDAQ -9, S&P +1. The 10 yr at 9:30 +8/32 (25 bp) at 2.04% -2 bp; 30 yr MBSs +15 bps. Yesterday the broad based S&P 500 index came within 9 points of a new all-time high; while the DJIA made new highs every day last week the wider market has still not been able to break through. At present levels the S&P is at what is now a triple top for the index going back to March 2000, if it doesn’t break out it could lead to a major decline based on a very serious technical top for the index. We expect it more likely we will see the index break to new highs, it could easily be today or in the next week. If it does not break to a new high very soon expect selling will take it and all the indexes down in the long awaited retracement that draws a lot of talk but so far it continues to move higher. One week from today the next FOMC meeting begins, concluding the following day with the usual policy statement. The meeting is always very critical, this time maybe a little more serious after the surprisingly strong employment report last Friday. Since the report there has been an increase in talk and debate about what the Fed may do with its QE, purchasing $85B of treasuries and mortgages every month. It is unlikely the Fed is going to end or even curtail its purchases now or in the immediate future; one strong employment report isn’t enough for the Fed to make any radical decisions. The QE will continue, however the policy statement after the meeting will be important; how the FOMC characterizes the economy and employment should provide plenty to think about. This afternoon at 1:00 pm Treasury begin three days of borrowing with $35B of 3 yr notes, tomorrow $21B of 10 yr notes and Thursday $13B of 30 yr bonds. At 2:00 Treasury will report the Feb budget balance at $-205B. On the budget front; Republicans have a plan, Democrats have their plan, the President has his also. None of it has any common ground; no tax increases from Republicans, just spending cuts. Democrats have tax increases (increased revenues) and only minor cuts that will not balance the budget in 10 yrs. The President wants no spending cuts, actually more spending, and tax increases. Nothing different than in the last six months. So far this morning markets are sitting quietly with little changes; there is little news to motivate any major movement so far. Mortgages doing better as is the 10 yr with stock indexes hanging around unchanged so far. The bias for interest rates remains bearish, however there will be a nice rebound frm these high rates if the stock market rolls over, we suggest keeping focused day to day but maintain a bearish outlook until the 10 yr can move below 2.00% which isn’t likely unless equity markets succumb to selling and profit-taking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries trading a little weaker early this morning while trade in stock index futures were slightly weaker prior to the 9:30 open. There are no scheduled economic reports today. At 9:30 the DJIA opened -9, NASDAQ -6, S&P -2; 10 yr note unchanged at 2.05% and 30 yr MBSs +4 bp. After the strong increase in interest rates last week and the stock market running to new all-time highs on the DJIA (S&P still hasn’t made it), this week is likely to see some minor improvement in rate markets while the stock market rests. At least that is what we expect, but until there is a significant decline in stock markets here and globally, interest rates have more propensity to increase than decline much. Three key data points this week; Feb retail sales, industrial production and factory usage. Congress working on the budget this week; Republican’s plan has no chance with cuts to Medicare and Medicaid, no cuts on Pentagon spending AND no new taxes. Democrat’s plan; increased taxes on high income earners and corporations and no cuts on Medicare or Medicaid, also a non-starter. The two parties are so far apart that a consensus seems highly unlikely. Also this week Treasury auction 3 yr, 10 yr and 30 yr notes and bonds beginning on Tuesday through Thursday. The total of $69B is $10B less than what Treasury has been borrowing in the last six months, the cuts are in the 10 yr and 30 yr auctions. French industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years. In Germany, after a sluggish in Q4 the Bundesbank predicts it will rebound in the current quarter. Confidence among investors and businesses jumped in February and retail sales rose the most more than six years in January. Still, factory orders unexpectedly fell and industrial production stagnated. The European Central Bank last week cut its forecasts and now expects the euro-area economy, Germany’s biggest export market, to shrink 0.5% this year before growing by 1.0% in 2014. The German economy will expand 0.4% this year, according to the Bundesbank. In China industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, although China is still seen as the global economic engine. Fitch lowered Italy’s sovereign rating to BBB+ from A- with a negative outlook, according to a statement released March 8. That’s three levels above junk and one higher than Spain. Italy’s 10-year yields climbed five basis points, or 0.05 percentage point, to 4.64%. Germany’s 10 yr bund at 1.51% on Friday, this morning 1.52%. In the US the decline in unemployment and strong increases in non-farm payrolls and private sector jobs surprised about everyone on Friday, (non-farm jobs +236K, non-farm private jobs +246K). The decline in the unemployment rate to 7.7% isn’t as positive as it appears, many simply not looking for a job, that eliminates them from the employment sector. On balance the Feb employment data was much better than had been thought sending interest rates up along with stock indexes. There is little reason now to expect interest rates will decline much on any rallies.