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. The Europe debt crisis is back with a major sell-off in US and global equity markets, and a move into US treasuries pushing the bellwether 10 yr note and mortgage rates to new historical lows. This week Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund will descend on Greece to review the debt crisis I the country. There is now concern that Greece will fall into depression similar to the US depression in the 30s, and an increasing concerns Greece will exit the EU. It shouldn’t be a shock to markets, there is little chance Greece can survive in the EU, nevertheless after a couple of weeks with not much out of the region it is now back with renewed fears. The reaction is sending US interest rates to record lows and the stock market down hard this morning. After euro finance ministers failed to staunch a decline in the single currency with the approval of a 100 billion-euro ($122 billion) aid package for Spanish banks last week, the 3 governing bodies will seek to determine the fiscal state of Greece where the crisis began almost three years ago. The euro currency is crumbling setting new lows against the dollar and the Japanese yen. The euro slipped below its lifetime average against the U.S. dollar art $1.2080. The market consensus now is that Greece will not be able to meet the requirements set out when it got bail-out money. Germany over the weekend said it will not agree to reworking the Greek bailout plan. “If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told the media yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.” The repercussions over Greece has sent Spain’s 10 yr note to a record 7.48% this morning up about 30 basis points in the last couple of days. Italy’s cost of borrowing also increasing to levels that will add more problems for it getting more money to fend off another crisis. Spain is next up for the rolling crisis. At 9:30 the DJIA opened -179, NASDAQ -63, S&P -20. The 10 yr note at 9:30 at 1.42% -4 bp and mortgage prices up 6/32 (.18 bp). The renewed concerns over the debt crises in Europe will support the bond and mortgage markets this week. However, although this morning the fear factor and concerns are at high levels, we have experienced this many times in the last couple of years. Markets will react on any comments out of the region. While Greece in the wider perspective is finished in the EU, momentary comments from the IMF, the ECB or the EU that sound more optimistic will get traders’ attention with market swings that could be severe similar to what we are seeing this morning. That said, technically the bond and mortgage markets are increasing their bullish bias. Expect the possibility of volatile markets this week.

Mortgage Rates

Mortgage Rates Treasuries and mortgage markets opened a little better this morning with US and Europe’s stock markets weaker. Today there is no data scheduled and none on Monday. Trade today should be rather quiet with nothing to trade from. Treasuries are higher (prices), with five-year yields falling to record lows, on concern a $122 billion bank rescue plan for Spain approved by European finance ministers may not be enough to halt the sovereign-debt crisis. In Europe Spain’s 10-year bonds fell for a seventh day, increasing the extra yield investors demand to hold the securities instead of German bunds to the most on record, amid concern slowing growth will worsen Europe’s debt crisis. German bunds extended a third weekly gain after a report showed producer prices in Europe’s largest economy declined more in June than economists forecast. Germany’s two-year yields were less than zero for an 11th day before a survey next week that economists said will show euro-area consumer confidence worsened for a second month in July. German producer prices declined 0.4 percent last month, after dropping 0.3 percent in May, the Bundesbank said in Frankfurt. Prices were forecast to fall 0.2%, according to a Bloomberg News survey of economists. The DJIA opened -75, NASDAQ -13 and the S&P -7. The 10 yr note at 9:30 1.47% -4 bp; 30 yr mortgage price +4/32 (.12 bp). A nice move for treasuries but MBS prices lagging so far this morning. The 10 yr testing the 1.46% resistance level again. If the 10 yr closes under 1.46% the yields will likely continue to fall, if not the tight trading range will continue with little change in interest rate markets. Interest rates are trading in a narrow range ahead of the idea that the Fed will ease again. The issue is not about another easing, it’s when it will come. We don’t think the FOMC meeting at the end of July will announce an ease, presently, given how US markets are trading most are looking for an easing in Sept. Much of it will depend on the July employment report which won’t be known until August 3rd and after the FOMC meeting on July 31st and August 1st.

Mortgage Rates

Mortage Raes The stock market better in early pre-market trading; the 10 yr note higher in yield. Mortgage prices at 8:30 were generally unchanged. 8:30 brought weekly jobless claims, claims were up 34K to 386K after falling last week’s decline of 26K. Expectations were for claims to increase 15K. There was little reaction to the report; the volatility in the numbers was due to a change in the timing of annual automobile plant layoffs. This time of year auto makers shut down for re-tooling and each year there are a few weeks that claims data is impacted. The timing of auto plant shutdowns to retool for the new model year has been difficult to predict this year, making adjusting the claims data for these seasonal variations more challenging. The four-week moving average, a less-volatile measure, fell to 375,500 from 377,000. The number of people continuing to collect jobless benefits increased by 1,000 in the week ended July 7 to 3.31 million. The continuing claims figure does not include the number of workers receiving extended benefits under federal programs. At 9:30 the DJIA opened +24, NASDAQ +20, S&P +3 on stronger than expected earnings reports from e-Day and IBM. At 9:30 30 yr MBSs -1/32 frm yesterday’s close; the 10 yr note 1.51% +1 bp Three more reports at 10:00. June existing home sales were expected up 2.7% to 4.65 mil units (annualized). July Philly Fed business index expected at -8.0 frm -16.6 in June. June leading economic indicators expected -0.2%. Existing home sales declined 5.4% to 4.37 mil units. The Philly Fed index was weak at -12.9 frm -16.6 in June; and Leading economic indicators -0.3%. All three reports were weaker than what had been thought. Somewhat surprising that the equity markets didn’t see more selling, but the data being weaker increases the view the Fed will have to ease again. The Philly Fed report implies the ISM data will be weak when reported in two weeks. The number of previously owned homes on the market decreased 3.2% to 2.39 million in June from a month earlier. At the current pace, it would take 6.6 months to sell existing inventory, the longest since November, compared with 6.4 months at the end of the prior period. Sales of single-family homes decreased 5.1% to an annual rate of 3.9 million, the slowest this year, while condominiums and co-op transactions dropped 7.8% to a 470,000 pace. Spain sold 2.98 billion euros of notes due from 2014 to 2019, in line with its maximum target. The Bank of Spain said demand for the two-year notes dropped to 1.9 times the amount sold from 4.26 last month. Spain’s 10-year government bond yield climbed above 7% following today’s debt sale. That was the level that spurred Greece, Ireland and Portugal to seek bailouts. Spain is negotiating a bailout of as much as 100 billion euros for its banks after souring real estate and consumer lending forced Bankia group in May to seek 19 billion euros of aid. German two-year yields were below zero for a 10th day before the parliament votes on aid for funding Spanish banks. Austrian, Belgian and French yields fell to records amid demand for havens with higher yields than Germany. German 2 yr note climbed two basis points to minus 0.042%. The 10 yr note failed to break 1.46% on a close Monday, since then the note has moved up fractionally. Mortgage prices are essentially unchanged since Monday. The 10 and 30 yr MBSs continue to hold positive momentum readings and both remain contained on selling at their respective 20 day averages. Since early April the 10 yr note has moved above its 20 day twice (6/22 and 6/29) but in each instance the note yield moved back down below it. That said, the rate markets have momentarily stalled; the note trading between 1.53% and 1.46%.

Mortgage Rates

Mortgage Rates Slightly weaker this morning for interest rates with stock indexes a little better. The 10 yr yield fell to 1.50% yesterday, down another 2 basis points, this morning the 10 yr at 1.51% at 9:00 ahead of the $21B 10 yr note auction at 1:00 this afternoon and the release of the FOMC minutes of the 6/21 meeting at 2:00 this afternoon. Not a lot happening this morning; May US trade deficit was -$48.7B about in line with estimates after April deficit was -$50.6B. 10:00 we got the May wholesale inventories; in line up 0.3% with sales down 0.8%. In Europe, more spending cuts and increased taxes in Spain as it tries to stay in line with the austerity requirements to get more assistance. Spanish Prime Minister Rajoy announced tax increases and spending cuts totaling 65 billion euros ($80 billion), risking a deepening recession to keep the euro financial crisis at bay. It is the fourth austerity package in seven months and will raise the sales tax to 21% from 18%; scrap a tax rebate for home buyers; scale back unemployment benefits and study pension cuts; consolidate local governments and eliminate the year-end bonus for public workers. The budget measures, covering the next two-and-a-half years, are about double those previously announced. EU officials are putting the finishing touches to a 100 billion-euro bailout for Spain’s banks. Germany held its 10 yr bund auction today; borrowing costs fell to a record-low 1.31% in today’s auction of 10-year securities, according to a statement from the Bundesbank. That’s down from 1.52% at a June 13 sale. Germany’s 2 yr note was at minus 0.013%. It slid as low as minus 0.018% last week. Investors have to pay the government to buy a 2 yr note; in the US our 2 yr note is +0.27% while the US 10 yr yield is at 1.51%. In France it’s 10-year yield slipped eight basis points to 2.32%, while its two-year rate declined as much as four basis points to 0.16%, also an all-time low. Investors continue to move to so-called safety continuing to push interest rates lower; a positive sign that US rates will likely to continue to fall. At 9:30 the DJIA opened -3, NASDAQ -5, S&P -1; the 10 ye note yield unchanged at 1.50% with mortgage prices also unchanged from yesterday’s closes. Another blow to the economic outlook this morning; the USDA released the July crop report and once again revised the corn and soybean output lower. Consumers, already dealing with gasoline prices hovering at $3.50, will see a huge increase in food prices with most all food will increase. Corn, historically around $3.00/bushel now trading above $7.40 for the crop currently planted. The increase in food prices that will come sooner than many think at the moment will add more credence for the Fed to launch another QE.

Mortgage Rates

Mortgage Rates Treasuries and mortgages opened better this morning; at 7:00 the 10 yr note price was up 15/32 from Tuesday’s close with its yield at 1.59% -4 bp; mortgage prices not doing much in early activity. Overnight the ECB cut its base rate by 0.25% to 0.75%, it was generally expected but really doesn’t matter much in terms of the euro debt crisis. China also cut its rates for the second time in a month. Early activity had the US stock indexes about unchanged from Tuesday. China cut interest rates and allowed banks to offer bigger discounts on their lending costs, intensifying its efforts to reverse a slowdown. China’s one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points with effect from tomorrow, the People’s Bank of China said. Banks can offer loans of as much as 30% less than benchmark rates. The Bank of England restarted bond purchases two months after halting its expansion of stimulus as the deteriorating outlook spurred policy makers to ramp up efforts to kick start a recovery. The Monetary Policy Committee raised its asset-purchase target by 50 billion pounds ($78B) to 375 billion pounds and said the purchases will take four months to complete. China, the ECB and the BOE all made rate moves today; almost looks like a coordinated move but that’s not likely. Given the deteriorating global economy rate cuts were generally expected, the timing was the uncertainty. Weekly mortgage applications fell last week according to the MBA. The overall index declined 6.7%. The purchase index for the June 29 week is up 1.0% vs. two prior weeks of small declines. The refinance index is down 8.0 % reflecting a significant drop in applications for government loans. The 30-year rate, at 3.86% for conforming loans ($417,500 or less), is down 2 basis points in the week for a new record low. At 8:15 ADP, the payroll people, reported their view of non-farm private jobs in June. It was expected to show an increase of 105K private jobs; as reported ADP is saying private job growth was +176K, much higher than traders were thinking. After a stronger open in treasures prices declined frm +15/32 to +9/32 ahead of the next data point, weekly jobless claims. Interesting that the stock indexes didn’t jump much on the jobs data. Weekly claims at 8:30 expected -1K to 385K, was another better report than thought. Claims dropped 14K to 374K the lowest claims in a month. Last week’s claims followed the recent trend of revisions upward, from 386K to 388K---not much. Continuing claims increased to 3.306 mil frm 3.302 mil. The 4 week smoothing average on claims fell 1500 to 387,750. On that report treasuries gave up more of the early gains, up just 8/32 at 1.62% frm the low early at 1.59%. Keeping up the running activity this morning; at 9:30 the DJIA opened -60, NASDAQ -9; the 10 yr note +3/32 at 1.62% -1 bp, MBS 30 yr price unchanged at 105.09 (105.28 bp). So far this morning there has been a lot of price volatility in all markets; crude oil higher earlier, lower at 9:30, stock indexes lower early then higher then opening lower. The rate markets were strong at 8:00 with the 10 yr yield at 1.59% down 4 bp, mortgage prices higher early then back to unchanged at 9:30. The last data today; the June ISM services sector index; expected at 53.0 frm 53.7. The index declined to 52.1 the lowest reading this year. The figures follow July 2 data that showed manufacturing shrank for the first time in almost three years as the global economy weakened. The ISM manufacturing index fell to 49.7 in June from 53.5 a month earlier. Trade volume is light this morning with many taking the day off and ahead of tomorrow’s employment data. Prior to the ADP this morning the estimate was an increase of 100K jobs, 105K private jobs with the unemployment rate unchanged at 8.2%. For over a month now long term rates, including mortgage rates have been tied in a narrow range with no trend movement. The benchmark 10 yr has strong resistance at 1.56% and equally strong support at 1.68%; when the range is broken we would expect a swift move in the direction of the breakout.

Mortgage Rates

Mortgage Rates Treasuries and mortgages opened a little weaker this morning after the 10 yr and the MBS markets both tested their best levels in the last month yesterday. The very tight trading range that has been holding markets in check for the past month continues. The early trading in stock index futures was a little better but not much. Not a lot of fresh news to be concerned with today. Europe is still in the headlights but after the summit meeting last week there has been some quiet out of the region. Europe’s leaders bought a little bit of time in staving off a euro-area breakup after last week’s summit even as the region remains a long way from stabilization. At the summit there was agreement to loosen bailout rules, lay the foundations for a banking union and break the link between sovereign and banking debt through the direct recapitalization of lenders. After the meeting the US bond market saw less buying as a safety trade that has been a key reason US long term rates are so low. It is likely that the current pause in the crisis won’t last long though; Germany was pushed into the position of going along with other leaders in the euro region but it isn’t likely this will end well and without continued disagreements over austerity and possible stimulus incentives. The purchasing managers’ index in China rose to a three-month high of 56.7 in June from 55.2 in May. The result may be a sign that growth in the world’s second-largest economy may steady after leaders stepped up stimulus to counter a slowdown and maintained property curbs aimed at lowering home prices. The government cut interest rates last month for the first time since 2008 and has reduced banks’ reserve requirements three times since November. On Sunday China’s official manufacturing PMI in June was 50.2, signaling a slower expansion for a second month, according to a separate report. In the US the June ISM services sector index will be released on Thursday. At 9:30 the DJIA opened -12, NASDAQ +0.16; the 10 yr note 1.60% +1 bp and mortgage prices unchanged from yesterday’s closes. Thursday the ECB meets with some thinking the bank will lower interest rates. Crude oil is headed higher today as supplies decline with the Iran embargo. At 10:00 May factory orders, the only data today, was better than expected; +0.7% with markets looking for +0.4%. The stock indexes gained a little on the better orders but trade is slow and will likely remain thatr way. The stock market will close at 1:00 this afternoon and the bond and mortgage markets close at 2:00 pm. Both the 10 yr note and 30 yr MBSs continue to find support at their 20 day averages and remain in their tight ranges. We don’t want to call this a bull market in the bond market anymore; the reality is it is neutral. Unable to establish any trend over the last month; traders are taking advantage of buying on dips on prices, selling on rallies as long as the tight range continues. Friday the June employment report is due with general expectations that it will be a weak one; when it comes to employment reports talk is just that, the report is usually a surprise one way or the other. Given the recent data confirming a slowdown the report shouldn’t be a surprise on more jobs,

Mortgage Rates

Mortgage Rates Treasuries and mortgages doing a little better to start this week’s action. The 10 yr note +6/32 at 1.62% and at 9:30 30 yr mortgages +3/32 (.09 bp) frm Friday’s closes. The DJIA opened -16, NASDAQ -3. The 4th falls in the middle of the week. Trading volumes should be thinner than usual with many taking a few days off. There are a number of key measurements this week; both June ISM reports (manufacturing today (see below) and services on Thursday), weekly claims on Thursday and the June employment data on Friday. The early forecast for the employment report, non-farm payrolls +100K and non-farm private jobs +105K with the unemployment rate unchanged at 8.2%. At 10:00 two reports; the June ISM manufacturing data main index was expected at 52.2; as reported manufacturing in the U.S. unexpectedly contracted in June for the first time in almost three years, indicating a mainstay of the U.S. expansion may be faltering. The Institute for Supply Management’s manufacturing index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May. The ISM’s U.S. production index decreased to 51 from 55.6. The new orders measure dropped to 47.8, the lowest since April 2009, from 60.1, and the gauge of export orders declined to 47.5, also the lowest in three years, from 53.5. The employment gauge decreased to 56.6 from 56.9 in the prior month. The unexpected decline sent interest rates lower and stock indexes down frm pre 10:00 levels. May construction spending also at 10:00 was stronger than the 0.2% expected, increasing 0.9%. Europe’s economy is showing increasing signs of weakness after stalling in the first quarter as the worsening fiscal crisis erodes the confidence of executives and consumers. The gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8. A reading below 50 indicates contraction. The European Central Bank’s governing council gathers in Frankfurt on Thursday with speculation officials will lower their benchmark interest rate by at least 25 points to a record low of 0.75% as the economy hovers near recession. A purchasing managers’ index for China fell to 48.2 in June from 48.4 in May, HSBC Holdings Plc and Markit said today. A similar measure released by the government yesterday also slid. The purchasing managers’ index released yesterday by the Beijing-based statistics bureau and China Federation of Logistics and Purchasing fell to 50.2 in June from 50.4 in May. The data showed inflation pressures waning, a slump in export orders, a lack of domestic demand and a “modest” decline in the size of the manufacturing workforce. The gauge of export orders in the federation’s index contracted for the first time since January. The US 10 yr note and 30 yr mortgage rates continue to trade in their respective narrow ranges; both are holding within five week ranges but there is an increasing belief Europe won’t drive safety moves into US treasuries as strongly as the last eight months. One of key reasons US rates have stayed low is due to investors parking money in the safest places as Europe wrestles with how to save banks and cut spending.