Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The bond and mortgage markets were closed yesterday for Columbus Day, the stock market traded. Key indexes were lower yesterday with the DJIA down 26.50 and NASDAQ -24. This morning in pre-market trade stock indexes were better indicating a better open at 9:30. The 10 yr note this morning at 7:00 am was up15/32 to 1.69% frm 1.74% at the close on Friday; by 9:00 however the 10 yr gave back most of the overnight improvement, at 1.72% up 6/32. Mortgage prices at 9:00 up just slightly +8 bp. There are no economic reports today. At 1:00 Treasury will auction $32B of 3 yr notes beginning three days of borrowing. Wednesday $21b of 10 yr notes and Thursday $13B of 30 yr bonds. The U.S. government has attracted a record $3.16 in bids for each dollar of the $1.59 trillion of securities it has sold in 2012, according to data compiled by Bloomberg. That exceeds the previous high of $3.04 set last year. Good demand primarily driven by safety moves against the on-going morass in Europe. The World Bank said growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2% this year from 8.3% in 2011. That is the slowest pace since 2001, according to World Bank data, and lower than a forecast in May of 7.6% The International Monetary Fund is set to revise down its global outlook for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis. European officials will move to prevent Spain from triggering a new round of convulsions as policy makers begin preparing for a summit next week aimed at easing the region’s three-year-old debt crisis. European finance ministers met in Luxembourg yesterday to discuss Spain’s overhaul effort and closer banking cooperation. Today, German Chancellor Angela Merkel makes her first visit to Greece since the crisis began in 2009. Spanish Prime Minister Mariano Rajoy travels for talks with French president Francois Hollande in Paris. EU leaders gather for a summit in Brussels on Oct. 18-19. German industrial production declined in August as the debt crisis damped economic growth and prompted companies to scale back investment. Production fell 0.5% from July, when it gained 1.2%, the Economy Ministry in Berlin said yesterday. Economists had forecast a drop of 0.6%. German bonds slipped as Chancellor Angela Merkel arrived in Athens for her first visit to Greece since the financial crisis began in 2009. The 10-year bund yield added two basis points to 1.50% today. Last Friday’s Sept employment report is still being debated; some think it was a conspiracy driven by the Administration, others see it at as flawed data. Neither is correct (I hope), I can’t wrap my arms around the theory advanced by ex CEO of GE Jack Welch. The data is surely to be revised in future reports. The markets (bonds and stocks) didn’t take the report seriously as there was only a minor improvement for the key indexes and then yesterday the meager Friday gains were taken back. The interest rate markets didn’t sell off as would be expected if the 0.4% decline in the unemployment rate in one month was taken seriously. The economy is growing at less than 2.0%, no way that many real jobs were generated in one month, no other data suggests anything near that. Traders are simply ignoring the report and moving on. The National Federation of Independent Business’s optimism index fell to 92.8 from an August reading of 92.9. Four of the 10 components that make up the gauge decreased. Confidence among U.S. small businesses cooled in September as fewer companies said they planned to hire or invest in new equipment. The fourth decline in the past five months for the measure showed business leaders are probably putting off some of their hiring and investment decisions because of a lack of clarity on tax and regulatory policy. At the same time, more companies expected better economic conditions in six months, signaling a pickup in sales and employment may take time to develop. At 9:30 the DJIA opened -24, NASDAQ -12, S&P -3. The 10 yr note +6/32 1.72% -2 bp; 30 yr MBS prices +9 bp.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; doesn’t kick off until Tuesday for the bond and mortgage markets, but stock will traded Monday. Last week selling took the 10 yr note up 12 basis points in yield however the MBS market still strong with the Fed back-stopping any significant selling. Treasury will auction $66B of notes and bonds this week beginning on Tuesday with the 3 yr, 10 yr on Wednesday and 30 yr bonds on Thursday. There isn’t a lot of critical data this week to work on. Weekly jobless claims, the Fed Beige Book and Sept PPI are about it. Friday’s employment report showing the unemployment rate that fell from 8.1% to 7.8% is still being discussed; the BLS saying 114K new jobs created in Sept but that part time workers jumped 873K, most of the increase were workers in the 20 to 24 yr old workers. Also adding to the decline in the unemployment rate, an increasing number simply no longer looking for a job. The reaction to the data didn’t excite the US equity market, the DJIA ended up just 34 points; the 10 yr note yield did increase as did MBSs but mortgages held better. The 10 yr had been weakening for a few days prior to the employment data, mostly due to relaxation over the EU mess. The Sept employment can, and should, be considered an outlier rather than an indication jobs are being generated, that seems to be what stock market investors are thinking.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Today’s Sept employment report wasn’t good for the bond market and only partially good for the economic outlook. The headline that will echo around the country, the unemployment rate declined frm 8.1% in July and August to 7.8%. Non-farm job growth was about in line with forecasts, +114K; private jobs were thought to be up 130K, as reported up 104K. July and August revisions to non-farm payrolls were revised higher by a total of 86K (+40K in July +46K in August). The average hourly earnings increased 0.3% after being flat in August. The unemployment rate is gathered through phone surveys by the BLS, asking if the respondent is looking for a job, has a job, or isn’t looking anymore, the drop implies more are now working. The household survey showed an 873,000 increase in employment, the biggest since June 1983, excluding the annual Census population adjustments. Some 582,000 Americans took part- time positions because of slack business conditions or those jobs were the only work they could find. The labor participation rate at 63.6% about unchanged from August. The 7.8% matches the January 2009 figure. Yesterday’s Sept National Federation of Independent Businesses painted a different view, further adding to the confusion on just what is happening in the employment sector. “September was another weak job creation month, owners remain pessimistic about the future and consequently hiring plans remain weak. Reported job creation for the past few months was negative, more workers let go than hired, suggesting a very weak jobs report for September”. No matter how it is sliced or diced, the employment report is better than what had been expected. The reaction sent the bellwether 10 yr note yield up from 1.67% yesterday to 1.72% at 9:00 and above its 20 and 40 day averages. Mortgage prices declined 25 bp frm yesterday’s close by 9:00. US stock indexes better at 9:00, DJIA up 54; not as strong as we would have expected. The remainder of the day will trade from the employment report. In Europe, the key stock markets rallied on the US employment report. Europe is still n play but not today as it is all about how markets judge the employment report. A possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. There’s no guarantee that Prime Minister Rajoy will ask for aid from the EU rescue funds and he’s facing a challenge to deliver the budget-deficit cuts pledged. Today’s employment data was so far off all estimates that it has already drawn sharp comments. Shock in some quarters; getting too testy: former General Electric Chief Executive Officer Jack Welch accused the Obama administration on Twitter of manipulating today’s employment data for political advantage. “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.” From my perspective, the headlines were very good, but only 114K new jobs created tends to temper the data. At 9:30 the DJIA opened up just 50 points, NASDAQ +12, S&P +6; not much considering the headlines, suggesting traders are not completely enamored with the report. The 10 yr note at 1.72% +5 bp and 30 yr MBS price -15 bp after being down 28 bp at 9:00. The 10 yr note high yield was 1.74% at 9:00. The initial reaction to the data this morning has driven the 10 yr note rate above its 20 and 40 day averages, the 14 day RSI has turned negative. The MBS market, although weaker this morning is holding better technically, on the Fed buying. We don’t make much of the present increases in rates unless it continues on Tuesday (Monday bond and mortgage markets will be closed for Columbus Day—stocks will trade).

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages started weaker this morning with stock indexes better. At 8:30 weekly jobless claims were about what had been expected, up 4K to 367K; last week’s claims revised from 359K to 363K. Estimates for claims were for an increase of about 7K; a Labor Department official today said there was “nothing unusual” that affected today’s figures, and no states were estimated. The four-week moving average, a less-volatile measure, was unchanged at 375,000. The number of people continuing to collect jobless benefits also was unchanged at 3.28 million. Eighteen states and territories reported an increase in claims, while 35 reported a decrease. There was no reaction in financial markets to the report ahead of tomorrow’s Sept employment data. In the UK the Monetary Policy committee voted to keep its stimulus plan going as increased concerns over inflation begin to roil the opposition to the $640B bond purchase program. Bank of England policy makers also left their key interest rate at a record low of 0.5%. The ECB kept its benchmark interest rate at a record-low 0.75% after a policy meeting today, no surprise there. Speculation that ECB President Draghi will today provide more detail of the bond-purchase program announced last month. Draghi will speak at a news conference to explain the decision at 2:30 p.m. He is waiting for Spain to decide what it will do; ask for the bailout loan or not; one month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Europe’s embattled southern fringe, Spanish Prime Minister Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it. The Spanish 10-year yield reached a euro-era record 7.75% on July 25, before Draghi pledged the next day to do “whatever it takes” to safeguard the monetary union. It is 5.85% today. At 9:30 the DJIA opened +40, NASDAQ +5, S&P +4. The 10 yr note at 9:30 1.65% +3 bp in rate; 30 yr MBS price -7 bp frm yesterday’s close and down -25 bp frm 9:30 yesterday. August factory orders were expected to have declined 6.0%; as reported orders fell 5.2% and August orders revised to +2.6% frm +2.8%. No noticeable reaction to the report. The Bloomberg Consumer Comfort Index rose in the week ended Sept. 30 to minus 36.9, a three-month high, from minus 39.6 in the previous period. The pickup also included less pessimism among households in their views on the buying climate and the economy. According to the report fifty percent of those surveyed had “positive” views of their finances, the most since July and a sign consumers will maintain their pace of spending. Higher home values, rising stocks and stable gasoline prices may be alleviating some of the anxiety caused by a labor market that’s shown scant improvement. The survey matches the improvement in the Conference Board’s consumer confidence index that increased to 70.1 frm 63.1 on 9/25. Tomorrow is employment day; generally a day accompanied with increased volatility due to the data mostly well off the mark of estimates. The present forecast is that non –farm jobs increased 113K, non-farm private jobs up 130K with the unemployment rate unchanged at 8.1%. A betting person would bet that the actual data will be different than the estimates, nevertheless markets have to have something to hang on. Today, as has been the case for the past seven sessions the bond and mortgage markets are not likely to change much. The 10 yr note yield over the past 7 sessions has been tied between 1.65% and 1.61%; 30 yr MBS prices also in a narrow range of 59 bp (19/32). No matter the Fed is going to buy $40B a month of MBSs through the end of time (no total amount set by the Fed), the treasury market will still lead interest rates higher or lower. This morning the 120 yr is sitting on its high yield over the last seven sessions at 1.65%, a break out of the range over the last 7 sessions is likely to move yields either higher or lower pending which way the break occurs, probably on tomorrow’s Sept employment report. Regardless of the direction we don’t expect interest rates will change much.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 8:15 the ADP said non-farm jobs increased 162K, estimates were for 140K. The 162,000 increase in employment followed a revised 189,000 jump in August which was originally reported at +201K. Over the two years ended August, ADP’s initial release has understated or overstated the Labor Department’s initial private payroll figure by an average of 66,000. Goods-producing industries, which include manufacturers and construction companies, increased workers by 18,000. Construction employment rose by 10,000, while factories employment climbed 4,000. Service providers added 144,000 workers. Companies employing more than 499 workers increased payrolls by 17,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 64,000, and small companies added 81,000, ADP said. The reaction to report was not much in the bond and mortgage markets but stock index futures gained a little from levels prior to the release. Although better than expected, ADP takes a back seat to the BLS employment data that will come on Friday. Estimates for the BLS data; non-farm job growth 115K, non-farm private jobs +130K with the unemployment rate unchanged from last month at 8.0%; (the unemployment rate is actually higher, probably close to 10% if those that have stopped looking for a job were included). At 9:30 the DJIA opened +15, NASDAQ +9, S&P +3. The 10 yr note at 1.63% +1 bp with 30 yr MBS price -5 bp after being up 5 bp earlier. At 10:00 Sept ISM services sector index expected at 53.0 frm 53.7 in August, the index increased to 55.1 the highest reading since last March; new orders component increased to 57.7 but the employment component fell to 53.1 frm 53.8 (0ver 50 is considered expansion. There was little reaction to better report in the bond market, mortgage market or the stock market with the employment report on Friday, markets are likely to sit quietly until then. Services industries from Asia to Europe cooled last month after the euro-area debt crisis pulled economies including Spain and Italy into recession and damped global growth prospects. The purchasing managers’ index fell to 53.7 in September from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said today. That’s the lowest since at least March 2011. In the euro-area, a gauge slipped to 46.1 last month from 47.2 and a U.K. measure also fell. In Germany, the region’s largest economy, France and Italy, the services indicators were all below 50 last month. The gauge for Spain dropped to 40.2 from 44. Readings below 50 indicate contraction, similar to the ISM data. Europe is now back in recession. Early this morning the weekly MBA mortgage applications data; overall apps increased 16.6% frm the previous week. Refinance apps exploded up 20.0% while purchase apps +4.0%. Low mortgage rates driving apps. Rates across products are all at record lows with 30-year conforming mortgages ($417,500 or less) down 10 basis points in the week to 3.53%. Signs of a turnaround in the real estate market are contributing to consumer optimism. Home prices in the second quarter rose by 2.2% from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data released last week. There is a law on the books that requires businesses to issue potential lay-off notices to employees 60 days before they are laid off. The law, designed to remove the shock of layoffs. Now with the election coming the Office of Management and Budget has asked Lockheed not to issue the notice to lay off 123K employees due to mandated defense cuts that were mandated by Congress. Lockheed says it may have to lay off that many due to cuts. If the company doesn’t issue the notices 60 days prior it will have to wait, which will cost the company huge amounts of money to wait another month. Well, the Office of Management and Budget is telling Lockheed it will repay the company if it holds off.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages opened slightly weaker this morning; the US and Europe’s stock markets better. European stocks climbed for a second day, their first back-to-back gains in three weeks, as Spanish bond yields fell following a report the country will soon seek a sovereign bailout; possibly as soon as this weekend. When that actually occurs it will alleviate a little of the fear factor that is one issue that has contributed to these low interest rates. Yields on Spain’s 10-year debt retreated 14 basis points to 5.74%; it was only a few days ago that Spain’s 10 yr traded at 6.06%. Reuters late yesterday reported that the government is prepared to ask the European Union for a bailout, citing four unidentified European officials. The buying has carried over to Italy where yields are down as much as 7 bps. Today’s bid has lowered the Italian 10-yr 5 bps, and dropped it back below 5.00%. Meanwhile, light selling has the German bund yields up as much as 4 bps. A 2 bp uptick has the German 10-yr yield near 1.475%. Finally, Britain held a 10-yr Gilt auction that saw the yield fall to 1.760% (1.83% previous) and the bid/cover rise to 1.9x (1.8x previous). If Europe’s rates continue to find support, the US 10 yr note and MBS markets may be vulnerable to selling. The only scheduled economic measurement today is Sept auto and truck sales; estimates are that sales dipped a little I Sept. Data from the investment markets suggest consumers are not buying the QE 3 announced in Sept. According to Bloomberg News The Consumer Discretionary Select Sector SPDR Fund -- which includes Amazon.com Inc. and Macy’s --has lagged behind the Consumer Staples Select Sector SPDR Fund by 2.8% since Sept. 14 the day after the $40B a month MBS buy the FOMC announced the easing move. The recent weakening in discretionary stocks relative to staples differs from 2010, when Fed Chairman Bernanke’s speech at the annual Jackson Hole conference in late August foreshadowed QE2, setting off almost six months of outperformance of discretionary stocks over staples. At 9:30 the DJIA opened +28, NASDAQ +12, SA&P +3. The 10 yr note yield at 1.64% +1 bp and 30 yr MBS price -3 bp. It is Tuesday; tomorrow ADP payroll people will release its estimate for Sept private job growth, the consensus is ADP will report 140K jobs while the consensus for Friday’s BLS data is that private jobs increased 103K. There is always a difference between ADP and BLS data, but either estimate isn’t much. As the calendar clicks off toward Friday’s employment data markets are likely to stabilize with not much change. That Spain is now expected to ask the ECB for money to support its bans has, at least for the moment, relaxed the safety trade into German and US bonds and notes. Countering the relaxation is the Fed’s easing move that adds support to MBS and Treasury markets. The Fed’s current QE is substantially different from the other easing moves, previously QE 1. QE 2 had limits for the amounts of treasury and mortgage purchases; this easing is open-ended that could go on for a year or two. One year of monthly purchases adds $480B to the Fed’s balance sheet. Rate markets continue to hold bullish technicals. The 10 yr note has resistance at 1.56% and support at 1.69%. MBS 30 yr FNMA doesn’t have resistance as the price is at historic levels, support for 30 yr MBSs is at 104.59 down 119 bp frm present levels. The mortgage markets could suffer large declines and still hold the bullish outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Miscellaneous: Europe’s stock markets better, the US stocks early this morning pointing to a better 9:30 open. Treasuries and mortgage prices generally unchanged from Friday’s closes. The calendar of data this week is full of key data with Sept employment report hitting on Friday. The minutes from the Sept 13th FOMC meeting will be released on Wednesday; they should be interesting as it was at the meeting the Fed decided to buy MBSs each month with no limit. The Fed is still pushing on that string, but any help keeping mortgage rates low is welcome. This morning on CNBC Chicago President Evans, one Fed official who wants the Fed to continue to ease, trying to justify why the Fed should continue to ease….possibly QE Infinity? The Fed wants to drive investors to stocks by keeping rates so low that eventually investors will be forced to equities. The thinking being that the economy will improve if stocks increase is difficult to understand. Spanish government bonds rose for a third day after stress tests of the country’s banking system showed a smaller deficit than earlier estimated, spurring optimism the region’s debt crisis is being contained. the Spanish banking system will need a recapitalization amounting to 59.3B euros ($76.6B). Spain’s securities pared last week’s declines after Moody’s Investors Service said the recapitalization of the nation’s banks was positive for its credit rating. Italy’s 10-year yields dropped to the lowest in a week after an industry report showed manufacturing output shrank at a slower pace in September. German bonds declined as demand for safer assets waned. The European Central Bank meets to review monetary policy this week. The unemployment rate in the euro area reached the highest on record (11.4%) as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Oil is up for a third day in New York as stress-test results bolstered confidence in the Spanish banking system, buoying optimism that Europe’s debt crisis can be contained. With the Fed committed to buy $40B a month of MBSs until the end of time inflation concerns are being debated. We don’t see any inflation on the e horizon and markets are not worrying but Bill Gross at PIMCO isn’t seeing it that way. He believes that the Fed’s flooding markets with constant money printing will set of inflation fears as the US dollar weakens. With more dollars out there the value of those dollars declines and usually increases inflation concerns, but the US and global economies are s weak inflation isn’t likely to be an issue for the dollar and the bond market for at least a couple of years. At 9:30 the DJIA opened +32, NASDAQ +13, S&P +4. 10 yr note at 1.63% unchanged while 30 yr MBS price up 26 bp after starting unchanged this morning. At 10:00, Sept ISM manufacturing index expected at 49.7, it climbed back over 50 for the first time in three months to 51.5. The initial reaction sent the DJIA up 138 points on the day. With the backdrop from Charles Evans (Chicago Fed) this morning on CNBC saying the Fed will stay in the game of easing for much longer than most think now, the 10 yr note and MBS prices initially didn’t give up on the stronger manufacturing report even with stock indexes rallying strongly, but by 10:10 the 10 yield increased by 2 bp to 1.65% but MBSs continued to hold earlier gains. August construction spending also out at 10:00 was expected +0.4% but declined 0.6%. Ben Bernanke is in town today, (Indianapolis) speaking at 12:30. Likely more of the same from is speech but we will listen closely for anything new but that isn’t likely.