Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com


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Thursday, October 20, 2011



Treasuries and mortgages opened a little weaker this morning. At 8:30 more selling after weekly jobless claims that fell 6K to 403K frm 409K last week (revised frm 404K); continuing claims were 3.719 mil up frm 3.694 mil last week.

Claims didn't generate selling, there are early reports unconfirmed so far, that Kaddafi has been killed.

Also there is that ever present belief Europe will get a plan worked out prior to this weekend's G-20 meeting. Germany and France still in disagreement over the role to be played by the ECB in the bank re-capitalization after the banks take huge losses over the bad debt of Greece and then the other troubled counties in the EU. a day before a finance ministers’ meeting in Brussels intended to set a common strategy on dealing with the turmoil there is nothing concrete. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences. French Prime Minister Francois Fillon stepped up calls for the 440 billion-euro ($608B) European Financial Stability Facility to be turned into a bank and given leverage by the ECB which, along with Germany, has rejected using its balance sheet to bolster the fund. Germany has endorsed enabling the EFSF to insure a portion of cash-strapped nations’ bond sales. Given the news reports over the differences it is a huge step of faith to believe a workable plan can be done prior to the G-20 meeting this weekend. Meanwhile in Greece riots are continuing over the deep austerity that must be in place to get more cash; Greece will run out of money in a few weeks.

Greece will default; I don't think anyone in the EU believes it won't. What seems to be happening in the negotiations is a plan to contain the defaults of Spain, Italy and Portugal. The EU cannot afford to let those countries to fall otherwise it is the end of the EU experiment that began 12 years ago when 17 countries agreed to join together with a common currency and common economic goals.

At 9:00 this morning treasuries and mortgages had come off their lowest prices earlier; the 10 -2/32 and mortgages -4/32 (.12 bp). The DJIA at 8:30 was +45, at 9:00 +2. US interest rate markets still welded to the action in equities. Likely that will be the way it goes the rest of today.

At 9:30 the DJIA +5, 10 yr note -7/32 at 2.18% +2 bp. Mortgage prices at 9:30 -7/32 (.22 bp).

Three key data points hit at 10:00. Sept existing home sales were expected to decline 1.8%, as reported sales fell 3.0% to 4.91 mil annualized; August sales revised to +8.8% frm +7.7%, inventories of unsold homes down 2.0% leaving an 8.5 month supply. Leading economic indicators for Sept was up 0.2% in line with forecasts. The giant in the room; the Oct Philly fed business index was expect -9.6 frm -17.5 in Sept; as reported it increased to +8.7. The components were mixed, new orders at 7.8 frm -11.3, prices pd at 20.0 frm 23.3 and employment at 1.4 frm 5.8. The initial reaction to the three reports didn't do much to stocks or bonds.