Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Financial markets started about unchanged early this morning; the stock indexes a little weaker, the 10 yr note yield down 3 bp and MBS prices at 8:00 unchanged from yesterday. Markets quiet ahead of data at 10:00. Optimism continues that the EU is making progress to fend off defaults on sovereign debts and save the EU from a break up. According to news reports European leaders are moving closer to an agreement on solving the region’s debt crisis that may involve buying sovereign debt. Austrian Chancellor Werner Faymann said the breakup of the euro area or the bankruptcy of a member would do more harm than good, a day after his German counterpart Angela Merkel said leaders “feel committed to do everything” to safeguard the monetary union. “The negative consequences of a euro zone breakup would by far exceed possible benefits it could have for individual countries,” Faymann said in a statement today. Merkel is due to meet French President Francois Hollande on Aug. 23 and Greek Prime Minister Antonis Samaras a day later. “Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel said yesterday. The increasing view that something is about to occur in the EU that will take it from the edge of the cliff has removed much of the safety moves to US treasuries, causing the 10 yr note yield to increase 45 basis points in rate over the last three weeks and increased mortgage rates by 25 basis points. Over the last couple of years the leaders in the EU, ECB and IMF have failed to come to any agreement that would ease the stress on southern Europe countries that are on the edge of default, now finally there actually may be some plan coming that every country in the EU can agree on. Been there before, but this time may be different, at least that is the view of markets as stocks increase and interest rates have increased. Besides the improving outlook in Europe, the interest rate markets also pressured by signs of improvement in the economy have boosted yields as investors reduced bets that the Federal Reserve will start another quantitative easing program when it meets on Sept. 12-13. Minneapolis Fed President Kocherlakota said the U.S. central bank has gone too far by pledging to hold its main interest rate near zero at least through late 2014. “I would not have chosen to put that date as far out as the committee has chosen,” Kocherlakota said in response to a question. Dallas Fed Pres. Fisher and Richmond Fed Pres., Philly Pres. Plosser and Richmond Fed Pres. Lacker are also echoing that thought. At 9:30 the DJIA opened +15, NASDAQ +1 and S&P +2; the 10 yr note yield at 1.82% -2 bp and 30 yr conventional MBS +15 bp frm yesterday’s close. At 9:55 the final U. of Michigan consumer sentiment index, expected at 72.0 frm 72.3 increased to 73.6. Better both still well of the year’s high at 79.3, it is the third lowest index read this year. At 10:00 July leading economic indicators, expected +0.2% increased 0.4%; however June LEI originally reported -0.3% was revised to -0.6%. The reaction to the two reports was minor. The bond and mortgage markets are in oversold technical position but yet haven’t turned as we expect we will see in the next few days as long as there isn’t any negative news out of Europe and the stock markets don’t explode in any major way. The wider look is that the 10 yr has the potential to increase to 2.00% but prior t\o that we may see some retracement. Any improvements I the bond and mortgage markets should be used to take advantage of any decline in rates. Right now there is little motivation for the interest markets to fall. Bernanke will open the Jackson Hole Fed conference on Aug 30, at which point markets should have a clear understanding about what can be expected at the mid-Sept FOMC meeting.