Mortgage Market

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



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Wednesday, October 26, 2011


A nice rally yesterday in the bond and mortgage markets; this morning no follow-through. The 10 yr note at 7:00 was off 9/32 with stock indexes showing a better opening at 9:30 after the DJIA fell 207 points yesterday. Rate markets continue to move in tandem with equity indexes; better indexes equals weaker rate markets. The 10 yr note has a well defined range over the last two weeks, frm 2.27% to 2.10% unable to break in either direction. MBS markets also trading in a tight near term trendless range. Note the 10 yr note yield chart above, not only is the range clearly evident, the 10 is still above its key 20 and 40 day averages.

At 8:30 Sept durable goods orders were mixed; the overall down 0.8% with forecasts of 1.0%, ex-transportation orders were expected up 0.5% but increased 1.7%. Stock indexes improved on the data, its a very volatile series and today markets are fixated on the so-called summit meeting of Euro leaders later today. Europe's finance ministers cancelled their scheduled meeting yesterday implying there isn't a plan in place yet to save Greece, Italy and Spain. The issue now is what hits Europe's banks can accept on the worthless debt from those countries. The amount needed to save Italy and Spain is more than can be scraped together. Chancellor Angela Merkel invoked Germany’s “historic obligation” to defend the euro and Europe as she urged lawmakers to back a planned increase in the euro- area rescue fund’s capacity to staunch the debt crisis. The German parliament voted 503 to 89 to increase funding of the European Financial Stability Facility.



At 10:00 Sept new home sales, expected up 1.8% increased 5.7% to 313K annualized; at present pace there is a 6.2 months supply down from 6.6 months in August, the lowest since Apr 2010. The median sales price $204,400, down 10.4% yr/yr. No initial reaction to the better report, all attention is focused on Europe and not so much on US economic reports.

Treasuries being dragged lower on this afternoon's $35B 5 yr note auction, the whip-saw thinking about Europe's debt crisis (today some optimism) and the continually changing economic outlook. Yesterday there was concern that Europe would not get a deal done and some quarterly earnings not meeting expectations sending rates lower and stock indexes down; this morning traders easily selling treasuries as the stock market is better and the 10 yr didn't break down below 2.10%, the low in the last two weeks, that has kept recent rallies in check. The bond and mortgage markets are essentially trading in a narrow flat range as little conviction as to the outlook remains murky.