Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the 10 yr note yield was up a basis point at 1.75%; but by 9:00 the 10 improved a little to unchanged at 1.74%. US stock indexes looking better at 9:00 with the DJIA pointing to a 35 point open at 9:30; 30 yr MBS price up 2 bp frm yesterday’s close. U.S. stocks rallied yesterday as investors speculated first-quarter earnings would help equities rally. Income at S&P 500 companies probably fell 1.8% in the first three months of the year, the first year-over-year drop since 2009. At 9:30 the DJIA opened +25, NASDAQ +7, S&P +3; 10 yr note -1 bp at 1.73% and 30 yr MBSs +9 bps. The initial gains failed to hold, at 10:00 the key indexes all lower on the day. Europe’s stock markets are better today on a report that China’s inflation eased a little after a 10 month high last month. The consumer price index increased 2.1% in March frm a year ago, the consensus estimate was an increase of 2.5% yr/yr. There is only one scheduled report out today; Feb wholesale inventories at 10:00, estimates were for an increase of 0.5%, as released inventories were . It isn’t much of a market mover, so no reaction to it. At 1:00 this afternoon Treasury will auction $32B of 3 yr notes. Ben Bernanke spoke last evening in Georgia but there was little news in his comments. He said that economic conditions were far from where he would like them to be. Monetary stimulus in advanced economies “is providing additional support for other countries through stronger financial markets, more exports,” he said in response to an audience question. Nothing in his remarks was noteworthy as far as markets are concerned. Tomorrow the minutes frm the March 21 FOMC meeting will be released wherein we may get a better sense of the members’ ideas about future QEs and/or when the Fed will be thinking about withdrawing. Given the sluggish economic outlook, it is not likely the Fed will begin ending the QE for many months. The NFIB Index of Small Business Optimism fell 1.3 points to 89.5, disappointing, but not a surprise given the current state of paralysis in Washington and the still mixed news on the economy. The Fed is lending the economy a trillion dollars, raising the value of its portfolio to unfathomable levels. In spite of assurances, the impact of creating nearly $2 trillion in reserves that can be loaned out is disconcerting at best, terrifying to some. The economy is hardly growing, but corporate profits are at record levels, an incongruity to most Main Street folk who see the Fortune 500 valuation hitting record highs while millions of small employers struggle to stay in business and tens of thousands have closed their doors, leaving commercial vacancy rates at elevated levels. Virtually no owners think the current period is a good time to expand. Over 75 percent think that business conditions in 6 months will be no better or worse than they currently are. Aggregated, there are no plans to create new jobs in the coming months, although some parts of the U.S. will experience job growth and some sectors will create new jobs (housing and energy in particular). But overall, it appears that there will be little growth coming from the small business half of the economy and as the world economy slows, maybe even less from big business. Interest rate markets here and globally are declining as central banks pile huge sums of stimulus into economies. Japan’s 10 yr note about 0.50%; Germany’s 10 yr note 1.24% and here our 10 yr at 1.73%. Investors seeking safety in government bonds are likely to continue buying US treasuries with our yield better and still considered the safest in the world. Technically the only concern we have these days is that the momentum oscillators are at near term overbought levels; all other data remains bullish.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week follows on the best week’s we have had recently in the interest rate markets. Today should however see some pressure in bonds and mortgages after such a deep decline in rates last week. There isn’t a lot of data this week, March retail sales is the most critical with questions about how consumers are spending. Last week’s two ISM indexes were weak, the March employment report was very disappointing with only 88K new jobs and thousands more dropping completely out of the job market. This week starts earnings season for Q2, Alcoa always leads the way and will report on Monday evening. Probably the most important thing this week is the releases of the FOMC minutes from the 3/21 meeting. Markets will be looking for how discussions developed about how and when the Fed will begin withdrawing frm the easing’s. After the weakness in most economic reports over the last couple of weeks it isn’t likely now that the Fed has any plans to cut back, at least for now. That said, the Fed is talking and discussing the eventual withdrawal the is the main force keeping stock markets moving higher. This evening Ben Bernanke will be speaking in Georgia on Financial Stability; not a direct speech about the economy but in Q&A he will be asked about the March employment data and what if any it means for QEs, will there be more---or less of it? After Friday’s employment report those at the Fed that have been arguing a withdrawal from the QEs won’t have nearly the leverage they may have had. 88K new private jobs and only 63% of all eligible workers still in the job market, the idea that the Fed would consider easing off the $85B of monthly purchases of MBSs and treasuries has lost most all credibility. There is however an argument that can be made, that the Fed’s easy money policy appears to be losing its effectiveness. This week Treasury will auction $66B of notes and bonds beginning Tuesday through Thursday. Early this morning the 10 yr note yield was up a basis point to 1.72%, 30 yr MBSs started a little soft but by 9:30 the 30 yr FNMA coupon was unchanged frm Friday’s close. US stock indexes were better at 8:30 than at 9:00; at 9:30 the DJIA opened -24, NASDAQ +3, S&P unch; 10 yr note 1.72% +1 bp. German production rose 0.5% from January, when it contracted a revised 0.6%, the Economy Ministry said today. Economists forecast a 0.3% gain, according to the median of 41 estimates in a Bloomberg News survey. From a year earlier, production dropped 1.8% when adjusted for working days. The better production data supported Europe’s stock markets. In the EU; over the weekend Portugal’s courts ruled against a plan by the government that was going to help meet the requirements for continued assistance frm the European Commission, the IMF and the ECB for its banking sector and debt problems. It was ruled unconstitutional to cut pay for government workers and cut the pension plans, singling out just one segment of the economy. Now Portugal has to come up with another plan in order to continue getting funds frm the troika. Margaret Thatcher, the former British prime minister who became one of the most influential global leaders of the postwar period, died on Monday, three decades after her championing of free-market economics and individual choice transformed Britain's economy.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The first Friday of every month is almost always one of shock and awe; the release of the monthly employment data is rarely a calm event. Today the March data didn’t disappoint in terms of surprise. The unemployment rate hit at 7.6% down frm 7.7% in Feb, so far on the surface that looks good, but not really. Non-farm job growth was expected at about 190K, job growth as reported increased just 88K; non-farm private job growth was thought to be about 200K, as reported up just 95K. There was revisions to Feb and Jan jobs that totaled an additional 61K jobs from original reports but the increases were minor in comparison to the very weak employment picture painted today. No matter the spin (assuming we hear it from the Administration) the report was the weakest since last June and the miss in forecasts the worst in over two years. As for the decline in the unemployment rate to 7.6%; adds to the concerns, it indicates an increasing number of discouraged workers no longer looking for jobs. Why the serious decline in employment data? That will be the topic for discussion through the rest of the day. The initial reaction to the weak data; at 9:00 this morning the 10 yr note rate was at 1.70% down 6 more basis points, 30 yr MBS prices at 9:00 +53 bp frm yesterday. US stock indexes in the futures markets were down, the DJIA -156, S&P -20. At 9:30 the DJIA opened -120 after trading -160 in the futures markets earlier, NASDAQ -55, S&P -18. The 10 yr at 9:30 1.70% -6 bp and now down 16 bp since Wednesday. 30 yr MBS prices at 9:30 +50 bp frm yesterday’s close and up 125 bp since Wednesday. Two things are contributing to what now appears to be a declining economic outlook. First, the sequester; it is beginning to bite as cuts in spending are now taking a toll on job growth. Congress and the Administration still very dysfunctional, didn’t have the common sense to come to agreement to avoid the automatic cuts that were set in motion in 2011 when the Pres. and Congress couldn’t agree on a budget and instead pushed it down the road. Down the road is now; the cuts have to be made because it’s the law. The second issue, just beginning to have its major negative consequence for job growth, ObamaCare. The health care bill is now beginning to be implemented, with full implementation in 2014. Employers now fully realizing the costs, are going to be less willing to add new hires and will only occur in businesses where it is absolutely necessary. Meanwhile, employers are using temps and driving current employees to increased production. Tempered hiring plans suggest companies are confident in their ability to meet demand with the existing workforce as federal budget cuts cloud the economic outlook. The absence of sustained and bigger gains in employment and earnings underscores the Federal Reserve’s view that more progress is needed before record monetary policy stimulus can be scaled back. Unfortunately the Fed’s QE is having less impact as the easing continues; no significant job growth has occurred, and likely will remain impotent in stimulating the economy. North Korea remains an irritant; although most all of the recent threats are meaningless in terms of implementation i.e., nuke attacks on S. Korea and the US, nevertheless the belligerence is roiling markets. Today the ‘little general’ of North Korea is telling foreign embassies to consider evacuating their diplomats from the capital as tensions mount with South Korea, warning that embassies can’t be protected in the event of a conflict. In other words, the N.K. regime will not protect embassies---they are on their own. A North Korean Foreign Ministry official met with the Russian Ambassador today to deliver the message. The British Embassy was told today that it won’t be able to guarantee the safety of foreign missions starting April 10 if a conflict flares up, the Foreign Office in London said in an e-mailed statement. Saber rattling continues; no way North Korea has any allies now; it is all about the Little General, Kim Jong Un, trying to act like an adult as he sees it. That said, the world is worried as the escalation in rhetoric grows. One more reason global interest rates are falling; safety moves.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 this morning the 10 yr note and MBS prices were slightly better after the strong improvements yesterday. North Korea is rumbling and the US is responding with increased military readiness, investors turning more to safety in US treasuries. The early activity in the stock index futures markets before 8:30 were trading better after the strong selling yesterday, also a reaction over the North Korean’s threats. Yesterday a military leader in the country commented he now had the approval of the leaders of the country to attack the US and South Korea, the remark added additional emphasis to the on-going threats. Although the media and markets are taking the situation seriously, it is very unlikely North Korea will actually follow through with all the rhetoric. Overnight according to the WSJ the Obama administration is backing away from the increasing tough talk on concerns it is fueling even more aggressive threats frm the new N. Korean leadership. At 8:30 this morning weekly jobless claims added more reality that the US economy isn’t growing in terms of job growth. Recently claims have been trending lower until last week when they increased, claims reported this morning were up 28K to 385K, the estimates were for claims to have declined 7K. Much of the recent economic data has been weaker than expected; both ISM indexes (manufacturing and services) were weaker than thought, now the claims are increasing more than thought. The reaction to the increase in claims took most of the early gains out of stock indexes and pushed the 10 yr yield down to 1.76%. The Labor Dept. pointed to the Easter holiday that varies each year making it difficult to smooth out swings in the data. The ECB left interest range unchanged as expected; but Mario Draghi said the bank will keep monetary policy easy for an extended period and further easing is possible if the EU economies weaken further. “Our monetary policy stance will remain accommodative for as long as needed,”…. “In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.'' He said risks to the economic outlook remain on the downside. The “consensus for the time being was not to look at rates.” Europe’s stock markets fell on his remarks of downside risks; yesterday Europe’s markets dropped the most in five weeks and today down more. At 9:30 the DJIA opened +14, NASDAQ -3, S&P +1; the 10 yr note at 1.78% after trading at 1.76% at 9:00 am. 30 yr MBS price at 9:30 +12 bps. Nothing left today as far as any potential market moving economic data. The North Korea news, if any, will get a lot of attention. Tomorrow the March employment report is going to influence how markets trade today. Investors will be positioning for what they expect. The present estimates are for non-farm jobs to have gained about 193K and private jobs +200K; the unemployment rate at 7.7% unchanged. The jump in weekly jobless claims this morning is not data taken into account for the March employment report. More opinions from Fed officials; various Fed officials have had varying opinions about the economy, the QE buying, and employment. No solid consensus among many regional Fed presidents. Atlanta Fed Pres. Dennis Lockhart is saying he isn’t convinced the 2013 economy will outperform the economic gains of the last few years. Other regional presidents have other thoughts that the economy will be stronger this year. The economy will see “a continuation of the story that we’ve been living,” Lockhart said. “A modest pace of growth, inflation that is pretty well contained and a very gradual reduction in unemployment.” He also questioned the unemployment rate, suggesting the unemployment rate may not fall to 6.5% as Bernanke has used as a trigger to increase the FF rates. Lockhart saying the new normal for unemployment rate may be no lower than 7.0%.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The March ADP private jobs report this morning was weaker than thought; according to ADP private jobs increased 158K, less than the 200K generally thought. The service sector accounted for most of the jobs, +151K, manufacturing jobs +6K while construction jobs showed no gains; the rebuild frm hurricane Sandy that hit the east coast a few months ago is winding down effecting construction employment. . The Feb ADP data was revised higher, from +198K originally reported to +237K. The March increase was the smallest since last October. Prior to the 8:15 report the 10 yr note and MBS prices were lower; after the report the 10 improved a little as did MBSs. The National Federation of Independent Business also out this morning with its survey of small businesses. “Owners reported increasing employment an average of 0.19 workers per firm, the best reading since March, 2012 and the fourth positive sequential monthly gain (last achieved early in 2011). Nine percent of the owners (down 1 point) reported adding an average of 2.3 workers per firm over the past few months. Offsetting that, 11 percent reduced employment (down 1 point) an average of 2.2 workers (seasonally adjusted), producing a seasonally adjusted gain of 0.19 workers per firm overall. The remaining 81 percent of owners made no net change in employment. Forty-seven percent of the owners hired or tried to hire in the last three months and 36 percent (77 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.” “ Eighteen percent of all owners reported job openings they could not fill in the current period, down 3 points from February. This measure is highly correlated (inversely) with the unemployment rate, so it is suggestive of a minor increase in the percent of our labor force that is unemployed. Much will depend on labor force participation changes of course. Job creation plans fell 4 points to a net 0 percent planning to increase total employment, a disappointing outcome. Not seasonally adjusted, 15 percent plan to increase employment at their firm (down 2 points), and 5 percent plan reductions (down 2 points), a bit of frost on the “green shoots” that appeared to be emerging in the first quarter. Owners are still pessimistic and see little reason to hire.” At 9:30 the DJIA opened +7, NASDAQ +2, S&P unch; the 10 yr note yield at 1.85% -1 bp and 30 yr MBS prices +9 bp frm yesterday’s close. At 10:00 the March ISM services sector index was expected unchanged frm Feb at 56; another disappointment, the index fell to 54.4 the lowest index read since last November. The employment component added more concern, that index fell to 53.3 frm 57.2 in Feb. Monday the ISM manufacturing index was also weaker than thought. With the weaker ADP data this morning and the NFIB report, the employment sector appears to have slowed. The initial reaction to the 10:00 report sent the stock market lower and improved MBS prices since the 9:30 levels below, about 3 bp. The 10 yr note yield managed to break kits 100 day average to 1.83% -3 bp on the session. Earlier this morning the weekly MBA mortgage applications were out; after a very strong week last week applications declined 4.0% overall. Purchase applications were up 1.0% as demand for government loans increased ahead of the hike in FHA premiums. Refinances fell 6.0% last week. The average 30-year loan for conforming balances ($417,500 and under) fell 3 basis points in the week to 3.76% with origination fees. The bond and mortgage markets continue to hold positive outlooks; however the 10 yr that drives mortgages has been in a tight range for the last five days, unable so to break its 100 day average on the rate until 10:00 when the ISM services sector index was weaker than expected. The momentum oscillators are continuing to indicate a momentary overbought situation but demand is holding well. As noted yesterday, it appears investors are using the bond market as a hedge against any decline in stocks; unwilling to exit stocks and fearing a correction, buying US treasuries will partially offset losses occurring in a correction in stocks. After the ADP report this morning traders are likely to lower their forecasts for Friday’s March BLS employment report. Presently the estimate is for non-farm jobs to have increased 193K, non-farm private jobs +200K with the unemployment rate unchanged at 7.7%.

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 a little soft this morning with US stock indexes pointing to a better open at 9:30. European stocks rose to a one-week high as trading resumed after a four-day weekend while Italian and Spanish bond yields declined. Italy’s 10-year rate fell eight basis points to 4.68%, while Spain’s yield slid seven basis points to 4.99%. In Cyprus, reports indicate the country will get an extra year to reduce its banking sector, now the country will have until 2017 to balance its economy; the extension reduces some of the concerns hanging over the country and slightly removes some of the safety moves into US treasuries, although only fractionally. Breaking news in Cyprus; the finance minister has resigned, no market reaction however. Germany’s inflation rate held steady at 1.8%, the lowest in two years. Breaking news in Cyprus; the finance minister has resigned. At 9:30 the DJIA opened +43, NASDAQ +14, S&P +4; the 10 yr note yield at 1.86% +2 bp and 30 yr MBS price down 15 bp frm yesterday’s close but still up 12 bp frm 9:30 yesterday. Feb factory orders out at 10:00; forecasts were for orders to have increased 2.9%, as reported orders were up 3.0%. Jan orders were originally reported down 2.0%, today it was revised to down just 1.0%. The reaction added to the gains in the key stock indexes; no immediate reaction in the interest rate markets. We reported yesterday that Fannie and Freddie are now making solid profits. That the two agencies have apparently turned the corner is befuddling the establishment in Washington. There was a stampeded to do away with the two government entities when the sub-prime debacle hit in 2008. Since then comments from politicians and FHFA have by enlarge been disparaging toward both. The Washington wisdom was to end the government’s involvement in the mortgage lending industry and turn to private markets for mortgage money ( always a non-starter in our opinion). The conventional wisdom was that the two agencies that were taken over by the government would in the end cost tax payers billions in the rescue. Now, five years after the crash, the agencies are actually making profits and causing the “experts” in Washington to scratch their collective heads----what to do? Well, what to do, is to do nothing; let them alone and recoup taxpayers money. Maybe just dump the FHFA? Sounds like a plan to me. Another reminder; this is employment week. Tomorrow starts the debate in earnest when the ADP private jobs are reported for March. In Feb ADP reported private job growth up 198K while the BLS reported private jobs up 246K; the present consensus is ADP will report tomorrow private jobs grew 205K, the present estimate from the BLS for Friday’s March private jobs is 200K. If ADP data is stronger than thought look for the BLS outlook to be revised higher; conversely, a weaker number will cause markets to think lower on the March BLS report. Technically the 10 yr and 30 yr MBSs remain bullish; the 10 yr rate holding below its 20 and 40 day averages while 30 yr MBS price holding above its 20 and 40 day averages. The only concern we have now is that the 10 yr note is overbought based on near term momentum oscillators, the potential for consolidation or some retracement is high. Fundamentally there is still some safety trades in treasuries over the EU debt crisis that surfaced again a couple of weeks ago in Cyprus. There have been some questions about North Korea’s rattling that it would attack the US with nukes; we very much doubt that has any influence on markets however. It isn’t unusual for the country to act up with outrageous comments. The Fed is still a large force in the bond market with its purchasing of treasuries and MBSs.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries opened a little weaker this morning but came back nicely, MBS prices also slightly weaker at 9:00 ahead of the March ISM manufacturing index at 10:00. Last week the 10 yr yield fell 8 bp in rate as investors continue to hold some treasuries as insurance against the banking collapses in Cyprus. So far today, and over the weekend, there hasn’t been any additional news from the little island country. Over the previous two weeks the 10 yr yield fell frm 2.05% to its low last Wednesday at 1.84%, MBS prices improved as well but not as dramatic as treasuries, the safest place to park money in an uncertain situation such as Cyprus. What Cyprus clearly shows is that the banking crisis in the EU is not over; after six months of little news, the region is back on watch. Over the weekend Russia said it won’t bail out people or companies that stand to lose money held at Cyprus’s two largest banks, First Deputy Prime Minister Igor Shuvalov said. Germany alleged that Cyprus was used to launder illegal Russian money. Funds held by Russians on the island aren’t all illegal, Shuvalov said. The only news over the weekend is North Korea’s saber rattling against South Korea and the US. On Saturday the North Koreans said the country was entering a “state of war” and threatening to strike US bases. The North saying it will not quit its nuke development. Most observers believe the increased tough talk is an effort to whip up sentiment in the country for changes in leadership as the new premier cements his hold. So far it is all words and markets overall are not taking it too seriously, at least for now. At 9:30 the DJIA opened -17, NASDAQ +1, S&P -1. 10 yr at 1.87% +1 bp and 30 yr MBSs -2 bps. The bond and mortgage markets trading better than earlier this morning. Two reports at 10:00; the March ISM manufacturing index expected at 54.0, as reported it was at 51.3 frm 54.2 in Feb. Not a good headline but the employment component did increase to 54.2 frm 51.4 in Feb. An index read over 50 indicates expansion. Also at 10:00 Feb construction spending; it was better than expected at +1.2% against forecasts of +1.1%---not much better though. After the data the 10 yr note yield that was at 1.88% early this morning, was unchanged from last Thursday’s close at 1.85%. This week is employment week with March data on Friday. In the meantime there are a number of reports that can move markets. The move to safe US treasuries is likely to keep interest rates frm increasing much with the EU still roiling and now North Korea acting up. This morning China’s Purchasing Mgrs.’ index was better than thought; at 50.9, up frm 50.1 in Feb. A separate gauge from HSBC Holdings Plc and Markit Economics rose to 51.6 in March from 50.4. Technically the only thing we are concerned about now is the momentary overbought momentum oscillators. The wider view is continuing to look friendly, the 10 yr holding below its 20 and 40 day averages on the rate and 30 yr FNMA MBSs above its 20 and 40 day price averages. Neither the 10 or MBSs however are very strong as most economists and traders are holding that interest rates will increase through the year. If there is a consensus now, the outlook is that 10 yr note will increase to 2.25% by the end of the year. The support keeping interest rates from increasing much is the Fed; the Fed is likely to continue buying $85B of treasuries and MBSs through the end of the year.