Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Interest rate markets started a little better this morning with stock index trading pointing to a weak open at 9:30. At 8:30 April personal income and spending; income was generally expected to be +0.1%, as released income was unchanged frm March. Personal spending, expected unchanged frm March declined 0.2%. Not good numbers for the bullish economic outlook but not a wash out either. There wasn’t much reaction to the weaker data in either stock indexes or the bond market. Consumer spending accounts for 70% of economic growth, March spending was originally reported +0.2%, in today’s data it was revised to +0.1%. The April decline in spending was the first decline since May 2012. The price index tied to spending, the gauge tracked by Federal Reserve policy makers, fell 0.3% in April, the biggest drop since December 2008, as fuel costs retreated. The so-called core price measure, which excludes food and fuel, was unchanged from the prior month and was up 1.1% from April 2012, matching a record low and confirming inflation is well under the Fed’s preferred target of +2.0%. Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, real purchases rose 0.1%, the smallest advance since October, after a 0.2% increase in the previous month. At 9:30 the DJIA opened -46, NASDAQ -15, S&P -5; 10 yr 2.10% +1 bp, 30 yr Fannies +8 bps and 30 yr Ginnies +18 bps. At 9:45 the May Chicago purchasing managers’ index was expected at 50.0 frm 49.0 in April; it exploded to 58.7, the largest monthly increase since March 2012. The index clearly above 50 the level that defines expansion and contraction. The reaction turned the stock market around quickly, from -54 earlier at 9:50 -6. The 10 yr jumped to 2.13% frm 2.10% and 30 yr MBS prices down 18 bp on the session and down 26 bp frm 9:30. At 9:55 the U. of Michigan consumer sentiment index, expected at 83.7 the index leaped to 84.5 the highest reading since July 2007. The bond and mortgage markets tried to improve early but the Chicago index and the U. of Michigan sentiment index turned the 10 back to 2.15% and weakened the mortgage markets. The bond bear got more meat to chew and took any near term optimism away. The technicals are still bearish; regardless of the debate over what the Fed will do as long as any data on the economy is better than forecasts there is very little chance of any significant improvement in interest rates. By 10:00 the 10 yr note was 2.16% from 209% earlier this morning before the strong economic reports. More fuel for the view the Fed may begin exiting QE. One key issue these days is what should the interest rates be based on the data and inflation (the lack of it)? With central banks around the world led by the Fed manipulating interest rates the last 2 yrs there is really no way to determine where the level of rates should actually be. That said, don’t fight the reality of the present condition, unrelentingly bearish. The MBS prices below are at 9:30; at 10:15 the 30 yr price -50 bp frm yesterday’s close and 58 bps lower than at 9:30. 10 yr at 10:15 2.17% +8 bp

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims at 8:30 was slightly weaker than forecasts, increasing 10K to 354K with estimates of unchanged. Last week’s clams revised up an additional 4K to 344K. The smoother 4 week average increased to 347,250 frm 340,500 last week; the number of people continuing to collect jobless benefits rose by 63,000 to 2.99 million in the week ended May 18. Not a good report but not bad either; prior to the data the 10 yr note was down 11/32 at 2.15% +3 bps, 30 yr MBS prices down 23 bps after the strong bounce yesterday. Stock indexes were better prior to 8:30 and held their gains after the data. Q1 GDP preliminary data showed the quarter grew at 2.4% slightly less than 2.5% expected and down frm 2.5% on the advance report last month. Slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010. Consumer spending, which accounts for about 70 percent of the economy, increased at a revised 3.4 percent annualized rate in the first quarter. The gain, which added 2.4 percentage points to GDP, was more than the previous estimate of 3.2%. This is the second of three for the quarter, with the final release scheduled for late June when more information becomes available. Overall take; the quarter showed improvement in the economy, the key strong consumer spending was the main driver. The slightly softer data took a little away from the stock indexes in the futures markets and erased the losses in the mortgage markets. At 9:00 MBS prices were unchanged after trading off 23 bp earlier; the 10 yr note back to unchanged at 2.12% after climbing to 2.15% before the data. At 9:30 the DJIA opened +13, NASDAQ +8, S&P +3; 10 yr note unchanged at 2.12% as were 30 yr MBS prices. Within a few minutes of the open though the stock market went negative, then only 20 minutes into the day the DJIA jumped up 70 points. At 10:00 April pending home sales were expected to be up 1.3%, as reported sales were up just 0.3% frm March. Yr/yr pending sales up 10.3% the best since Apr 2010 when the home buyers credit ended. At 1:00 Treasury will auction $29B of 7 yr notes to complete this week’s borrowing. Yesterday the 5 yr auction met with decent demand. The US stock market is exhibiting some increased volatility as we noted it would after the strong rally over the past three months. The recent increase in interest rates is causing a little concern about how the increase in mortgage rates will impact the overall economy. It has been the housing sector that has driven the improvement in the economy and consumer confidence; any slowing in the housing sector may take a little wind out of stocks. No major selling so far but the last couple of days have been volatile with wide swings in the indexes through the sessions. A little pause, or a correction? The bond and mortgage markets have stopped their increases, we expect some improvement in rates over the next few days. The run-up in rates at the speed in which it occurred does suggest the end has come for any lower rates, but we believe the Fed will continue to support the low rate environment with QEs that will keep rates from increasing much more and likely see some small decline from present levels. Unemployment is still too high and the economy still fragile. The Fed isn’t going to let all its efforts go down the drain now, if it takes more QE the Fed will do it. Technically, what we have going for us is that both the bond and mortgage markets are momentarily oversold based on momentum oscillators. That said though, the overall trend is bearish and will continue unless the 10 yr note declines below 1.97%. Look for near term improvement in prices but don’t ignore the bearish trend. The data this morning was all a little worse than expected but no slippage in the stock market and not much change in the rate markets so far.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This morning the stock market is opening weaker after the rally yesterday; the interest rate market early a little better but not much. At 9:00 the DJIA was down 75 points frm yesterday’s close, there was no change in the bond and mortgage markets even with lower stock markets here and in Europe. At 9:30 the DJIA opened -81, NASDAQ -20, S%P -10; the 10 yr at 2.16% -1 bp and 30 yr MBSs at 9:30 +5 bps. There are no economic reports to focus on today but tomorrow and Friday we have a couple of key reports. Treasuries were little changed today, erasing a decline that had pushed the yield to 2.23% briefly yesterday, the highest in 13 months. Bonds worldwide are headed for their biggest monthly loss in nine years. When the end came it hit like a hammer, we warned a month ago the low in interest rates had occurred yet too many still held out for a rally that didn’t occur and now mortgage rates are over 4.00% and still increasing. When any market reaches extreme levels it usually ends badly for those that don’t make the adjustment quickly. In the case if interest rates, at 1.60% on the 10 yr note and mortgage rates at 3.25%, how much lower could they go? Yesterday’s selling was the biggest increase for the 10 yr note since Oct 2011 and has yet to attract any significant buying interest. The Fed, expected now to taper its QE buying has pushed rates up and likely will continue to do so, although the volatility in the rate markets will increase with occasional; buying but the trend now is definitely up for rates. Presently the bond and mortgage markets are reaching momentary oversold momentum oscillators but we do not expect a substantial improvement even when a retracement occurs. At the moment we are unsure of how high the 10 yr and MBSs will go before the markets attract some interest. When will the Fed actually announce a reduction in its easing? In some sense it doesn’t matter, as noted recently markets don’t wait for the reality, markets always move in anticipation. Yesterday, and this is important, Treasury sold $35B of 2 yr notes; normally 2 yr notes see good demand. Yesterday the demand for the note auction was miserable with very weak demand and suggests more bearishness for the bond and mortgage markets. Today Treasury will auction $35B of 5 yr notes, normally we expect less demand as the auctions move higher on the curve. Another weak auction at 1:00 this afternoon isn’t going to go down well in the rate markets. Tomorrow its $29B of 7 yr notes. Mortgage applications decreased 8.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 24, 2013. The Refinance Index decreased 12%, the largest single week drop in refinance applications this year, from the previous week to the lowest level since December 2012. The seasonally adjusted Purchase Index increased 3.0% from one week earlier. The refinance share of mortgage activity decreased to 71% of total applications from 74% the previous week to the lowest level since April 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.90%, the highest rate since May 2012, from 3.78%, with points unchanged at 0.39 for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.07%, the highest rate since August 2012, from 3.93%, with points decreasing to 0.27 from 0.36 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.62%, the highest rate since August 2012, from 3.53%, with points increasing to 0.27 from 0.13 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.10%, the highest rate since August 2012, from 2.96%, with points decreasing to 0.30 from 0.32 (including the origination fee) for 80% loans. I hesitate to say this because it may motivate too much momentary optimism; the bond and mortgage markets are oversold and should see a little improvement as long as US and global stocks decline. It isn’t a sure thing and we are unable to predict with any accuracy when and frm what levels we will get a bounce. The present situation, regardless of when or if a rebound will occur, the bond and mortgage markets are exceptionally bearish; investors jettisoning low yield fixed income investments, mortgage markets going into the present spike were unhedged and didn’t believe it necessary to hedge the risk adding to the selling.

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 ahead of the coming three day weekend. At 8:30 April durable goods orders were better than estimates, +3.3% against +1.2% expected; ex the volatile transportation orders durables increased 1.3%, the first gain in three months. March orders were down 5.9%, revised from -6.9% originally reported. The transportation component gained 8.1% after falling 14.7% in March. The report was better than thought but still isn’t real solid; the figures used to calculate gross domestic product this quarter were less positive, indicating business investment is cooling. Shipments of non-defense capital goods excluding aircraft dropped 1.5% after increasing 0.5% in March. Gains in inventories may help offset some of the softness in capital spending this quarter, limiting the damage to growth. At 9:00 the stock indexes were pointing to a lower open at 9:30; the 10 yr note rate 2.00% down 2 bp and 30 yr MBS price at 9:00 +20 bp frm yesterday’s close. At 9:30 the DJIA opened -54, NASDAQ -19, S&P -8; 10 yr note at 2.00% -2 bp and 30 yr MBS price +20 bp frm yesterday’s close. Markets still debating what Bernanke and the FOMC minutes really mean in terms of when the Fed will begin to withdraw some of the QEs. Wednesday there was enough confusion between the FOMC minutes of the 5/1 meeting and Bernanke’s testimony at the Joint Economic Commission that sent stocks and bonds in a wild trade; the 10 yr treasury note range on Wednesday, 1.89% to 2.04%, 30 yr MBS prices down 100 basis points. In the minutes there was evidence that more members were debating the possible tapering off of the $85B Fed buying; at the testimony Bernanke answered a question that within the next three or four meetings the Fed may begin to lessen the monthly purchases. Now after a day of reflection markets have realized the Fed will only move when the economy warrants it---and the movement from the Fed could be an increase as well as any tapering, all dependent on the economic conditions. The Fed is always in play when it comes to the bond and stock market, especially now. On one hand there isn’t yet enough evidence that the US economy is gaining enough momentum for the Fed to withdraw its easing amounts; on the other hand, underlying all of the debate still holds that the end is approaching. As noted previously the next two weeks may be volatile as each key economic report is injected into the question---what does it mean to Bernanke? The recent spike in interest rates was triggered by the strong April employment report on May 3rd, was it the beginning of improvement or just a one off gain? Markets are likely to remain uncertain now until the May employment report on June 7th. Whether or not the Fed keeps the money flowing or begins to taper, we remain convinced that the interest rate markets will not likely decline much on any rallies. We suggest taking advantage of any improvements in the rate markets to get deals done. The bond and mortgage markets will close today at 2:00 while stocks will go the entire day. Markets closed on Monday. Next week not much data, Treasury will auction $99B of 2s, 5s and 7 yr notes.

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 this morning the 10 yr note at 2.01% down 2 bps frm yesterday’s huge increase; 30 yr MBS price up 26 bp after falling 98 bp yesterday. 8:30 we got weekly jobless claims, always important but now even more so after the Federal Reserve confused markets (and likely themselves) with conflicting comments frm Bernanke’s testimony and the FOMC minutes of the 5/1 FOMC meeting. Bernanke’s comments in the hearing implied that some tapering was being discussed, saying the Fed may begin thinking about ending in the next three or four meetings. The FOMC minutes indicated there is a growing discussion within the group about reducing the QEs, maybe at the June FOMC meeting. Either Bernanke is testing the waters on reaction to unwinding QEs, or he and the other Fed officials are on different pages. Regardless, the Fed clearly upset markets yesterday; another huge spike in rates and what may be the beginning of a major correction in the stock markets. Weekly jobless claims at 8:30 were about in line with estimates; claims were expected to have declined 15K to 345K, as reporte4d claims were down 23K to 340K with last week’s claims revised to 363K from 360K. There was no noticeable reaction to the data. The 4 week average, a smoother look at claims, was down 500 to 340K filings; continuing claims declined from 3.04 mil to 2.91 mil. Most all major stock markets around the world are declining today after the confused comments from the Fed yesterday. Japan’s key index down 7.3%, all Europe’s stock markets taking huge hits. At 9:00 this morning based on US futures trade the DJIA looked like an open down 77 points frm yesterday’s decline. The 10 yr at 9:00 at 2.20% -2 bp and 30 yr MBSs -3 bp after being up 26 bp at 8:20 am. Already markets have exhibited increased volatility; at 9:30 the DJIA opened -40, NASDAQ -40, S&P -16; the 10 yr note declined to 1.98% and 30 yr MBS prices back to +25 bps frm yesterday’s close. So, what can we take away from yesterday’s events that have led to increased uncertainty about the Fed? First; the Fed is not likely to end its QEs or taper them back until there is more evidence that the US economy is actually gaining momentum. Recall that the current run-up in rates began when the April employment report was released on May3rd, since then the various reports on the economy from April and May data reported so far have not been very strong; manufacturing reports have weakened, home sales while better so far may slip as mortgage rates have increased (re-financing has declined substantially based on recent data), business activity frm the Philly Fed index actually turned negative in May. Second; we have to accept the reality that there is increasing discussions within the Fed about at least thinking about how and when, the debates have accelerated recently. Third; as we have noted many times, by the time the Fed actually announces its intentions to reduce monthly purchases, the markets will have already discounted the decision in prices and yields. Fourth; regardless of how markets are reacting now, the Fed is unlikely to back off the current $85B a month of purchases until the end of the year or early Q1 2014. At 10:00 April new home sales were expected down 1.8%, sales increased 2.3%. The annual increase on prices up 15%, the largest increase since 1963 at $271,600. Based on the sales pace there is only a 4.1 month supply on the market. Builders are able to increase prices, a positive sign; now markets will look to May sales data on both existing and new home sales as mortgage rates have risen since April. Stock indexes improved on the better report. The next two weeks are likely to see increased volatility, as if we haven’t had enough already; between now and June 7th when the May employment report is due there are a number of data points that while always important, will carry increased importance in the face of Bernanke’s remarks and the FOMC minutes released yesterday. Each US and global economic reading has the potential to move markets. We expect market volatility will remain at high levels. And it isn’t just US data; China this morning reported its manufacturing sector is continuing to decline. Bottom line; if the economy isn’t moving forward, the Fed isn’t going to change its easing policy. Once again, do not fight the tape now; the bond market is bearish---period. From our perspective it will continue bearish until the 10 yr moves below 1.85%, the first resistance is at 1.97% but even that level will not change the technical bearish outlook. The prolonged decline in interest rates is very likely over, suggest taking advantage of any market improvements. There is little reason now to anticipate interest rates will re-test the recent low yields.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US markets started quietly this morning ahead of Bernanke’s testimony to the Joint Economic Committee at about 10:00. Markets are completely focused on the Fed’s QEs recently, and when the Fed will begin to unwind its monthly purchases of treasuries and MBSs. The question of when was fueled by the April employment report on May 3rd that was stronger than most were expecting. Since then US interest rates increased as well as the key stock indexes. Yesterday there was a lot of position squaring as traders short the bond market evened out a little sending the 10 yr note yield down 4 bp and mortgage prices up 36 bps. At 9:00 this morning the 10 yr was down another bp to 1.93% and 30 yr MBS price up 9 bps. Stock indexes were aiming at a slightly better open at 9:30. Early this morning the weekly MBA mortgage applications were out and not a surprise that apps have fallen for the second week as mortgage rates have increased; especially re-finance apps. The purchase index is down 3% following the prior week's 4% decline, a tangible reversal that points to trouble for May home sales compared to April home sales. The refinance index is really showing its sensitivity to mortgage rates, falling 12% after the prior week's 8% drop. The average 30-year rate jumped 12 basis points in the prior week and is up another 9 basis points in the latest week to an average 3.78% (conforming balances $417,500 or less). At 9:30 the DJIA opened +13, NASDAQ +1, S&P +1. The 10 at 1.93% and 30 yr MBSs +9 bps. The first economic report this week at 10:00 this morning; April existing home sales. Forecasts were that sales increased 2.6% to 5.0 million units (annualized); as reported sales were up 0.6% at 4.97 mil units; yr/yr sales up 9.7%. March sales were revised higher, from -0.6% to -0.2% offsetting the weaker April data. Yesterday NY Fed President Bill Dudley said he has not decided whether the Fed’s next move should be to enlarge or shrink its bond buying program as he called for a fresh look at its eventual retreat from record asset purchases; “Because the outlook is uncertain, I cannot be sure which way -- up or down -- the next change will be.” While many Fed officials have voiced support for shrinking purchases as the next step, Dudley, who is also vice chairman of the FOMC, signaled willingness to increase purchases. Earlier today St. Louis Fed President Jim Bullard said the central bank should continue its bond buying because it’s the best available option for policy makers to boost growth that is slower than expected. Dudley said policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing record stimulus. “I don’t really understand very well how the tug-of-war between the fiscal drag and the improving economy are going to sort of work their way out.” Bernanke is not likely to make the picture anymore clear in his testimony; the Fed simply isn’t sure about the forward path of the economy at this point. The last two months of data have seen a lot of weaker than expected data, but the April employment report still rings in the ears of most analysts and more importantly the Federal Reserve. Adding more uncertainty is the sequester, cutting spending is keeping the growth down; Dudley saying the spending cuts and tax increases will lessen GDP growth 1.75% this year. Bernanke isn’t likely to change is comments from the last FOMC meeting, providing anything of consequence to the debate on what the Fed will do. The only thing that has occurred since the last FOMC meeting was the strong April employment report two days after the conclusion of the meeting. Not only Bernanke today; at 2:00 the minutes frm the 5/1 FOMC meeting will be released. Normally the minutes provide some insight on the details of the discussions in the meeting. This time with Bernanke leading the minutes they won’t likely carry as much interest in markets. Technically, the 10 has resistance at 1.85%; until that level breaks the overall outlook remains bearish. 30 yr May 3.0 FNMA coupon has resistance at 103.47, about 70 bp higher than where it trades today.

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 (7:00 am) the stock indexes were unchanged as was the interest rate market. By 9:00 the key indexes were improving and more selling was occurring in the bond and mortgage markets. Yesterday the 10 yr note closed at its highest rate in this current climb higher in rates. The 10 at 1.98% at 9:00 this morning is at another new high; MBS prices also under pressure again. The increase in rates continues as investors are jettisoning low long term fixed income investments on belief the end has already occurred for the US bond and mortgage markets. Once again today there are no scheduled economic reports. Most all focus now is on tomorrow’s testimony from Bernanke to the Joint Economic committee about the economy and the outlook. Regardless of his prepared opening remarks the focus is likely to center on his thoughts about the Fed’s bond and mortgage buying programs. Up until now the Fed has consistently talked about the slowly improving economy, although the policy statement issued after the FOMC meeting on 5/1 stated the Fed sees downside risks to the economic outlook. He will chide Congress and the Administration again that what is needed now is fiscal help, monetary help has about run its course and hasn’t achieved the desired effect; unemployment still high and there is no inflation (actually deflation is currently more of a concern). On that point, it isn’t good for the economic recovery to have the inflation rate as low as it is now (1.7% yr/yr). The economy is moribund with little pricing pressure to motivate consumer spending. The bond market is headed for its first monthly loss since January before St. Louis Fed President James Bullard and New York Fed President William C. Dudley speak today. Fed Bank of Chicago President Charles Evans said yesterday the economy has improved “quite a lot” and he would be amenable to the central bank slowing its asset purchases if he had confidence job growth would be maintained. The Fed publishes minutes tomorrow of its April 30 to May 1 policy meeting. Bullard said last month that unless inflation improved he would favor more QE. If one just followed the various comments from Federal Reserve officials, confusion would be the end result. The only voice that matters is Bernanke’s, but the noise from the other Fed officials continues to roil markets. At 9:30 the DJIA opened +24, NASDAQ +1, S&P +1. The 10 yr at 9:30 1.97% unchanged, 30 yr MBSs -9 bp, FHAs -20 bps. Last Wednesday the bellwether 10 yr note hit an intraday high yield of 1.98% before ending the day at 1.94%. This morning the 10 is re-testing that level, if the note can hold here we may see some short-covering in the next few days improving prices a little. If the 10 closes above 1.97% it will add even more negative vibes in the interest rate world. All technicals are increasingly more bearish, a new high yield close will likely push the outlook for the 10 to 2.06%, the high rate going back to mid-March. Is there a potential for a rebound in MBS prices? Possibly, but it won’t likely be enough to change the overall bearish outlook. Do not fight this bearish trend.