Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Getting off the a good start in the bond and mortgage markets this morning with US and Europe stock markets weaker. 9:00 had the 10 yr note at 1.72% -3 bp and testing its key 20 day average; 30 yr MBS prices improving again +15 bp and making another new record high on prices. The Fed’s decision to buy $40B a month of MBSs with no limit has sparked a run to MBSs by investors looking for better returns than can be achieved in treasury markets. There are no economic reports today but the rest of the week has a number of critical reports. Treasury will auction $99B of notes beginning tomorrow with $35B of 2 yr notes, Wed $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent Treasury auctions have seen decent bidding but not as strong as a few months ago when it looked like the EU nations were about to split apart. The ECB stepped up with its plan to by sovereign debt from struggling economies, that took away a lot of the need for safety in US and German bunds. Much of the weakness this morning in Europe’s stock markets and key US indexes is due to frustration within the EU with Spain’s dragging its feet with deciding whether it will ask for assistance from the ECB. The country needs a full scale rescue but won’t ask for it, looking for better terms? Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue. The Spanish prime minister has displayed reluctance to seek more help after Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister said last week Spain will consider a bailout if conditions are acceptable. As long as any country in the EU balks, or doesn’t in in step with Germany there will be a need for safety; today a good example but nothing as severe as six months ago when it looked like the whole region would come undone. U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, government figures show. German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Ifo’s measure of executives’ expectations declined to 93.2, the lowest since May 2009, from 94.2. A gauge of the current situation fell to 110.3 from 111.1. The debt issues in Spain, Italy and a couple of other of the 17 member EU are in recession talking Germany down with them, not to mention the global economies including the US. At 9:30 the DJIA opened -50, NASDAQ -27, S&P -8; 10 yr note at 1.73% -2 bp while 30 yr FNMAs were up 9 bp frm Friday’s close. At 10:00 the 10 yr note is testing its 20 day average at 1.72%; if the 10 can break the 20 and 40 day average (1.69%) we would expect the note to decline to at least 1.60%. This week’s economic data will be important to the technical outlook as well as the US stock indexes. A lot of chatter out there that the stock market is overdue for what some see as a major correction after the improvements over the past few weeks. In some sense the more talk of a correction coming, the less likelihood it will happen; when the majority talk more bullish is when we worry most. The Oct 30 yr FNMA coupon’s relative strength is in overbought levels suggesting some consolidation or pullback; wait for it though, the MBS market is strong.