San Diego Home Mortgage Blog

. The rate markets continue to hold well but we do not want to float overnight, too much uncertainty for the next day or so after the trade this afternoon. Better to appreciate the near term uncertainty and stay out of it.

It wasn't a complete failure, but it wasn't as good as markets had come to expect from a Treasury auction. The $12B 30 yr bond auction this afternoon came with a rate of 4.009%, a cover of 2.37 and foreign investors (indirect bidders) taking 34.5% of it. Earlier this morning the 30 yr traded at a yield of 3.96% on what we can call excessive optimism; investors shied away from the auction with the prices pumped up and the yield low. The call had been closer to the 3.975% to a high end of 3.995%. The previous $12B 30 yr re-opening saw 4.238% with a 2.92 bid-to-cover and a solid 46.5% indirect bidder participation rate while the 7 30 yr auctions in 2009 had an average 2.44 cover and 43.8% indirect take.

The long end of the curve took a big hit on the poor showing on the auction. The 10 yr note price fell 22/32 its yield jumped from 3.19% to 3.256% before finding a little late afternoon support. Mortgage prices did manage to hold on for about an hour before they too backed off from early levels this morning. Old salt savvy traders continue to stay bullish but most of us are scratching heads and nervous about how low interest rates have fallen recently. Hardly any consensus that makes sense to me has been offered up for the continued decline in long term interest rates. Yes, we have no inflation fears but the dollar continues to collapse lessening the value of bonds dominated in dollars. A weakening dollar does attract foreign buyers as they can get more for their money, but as the buck continues to slide previous buys are less profitable. According to the overwhelming consensus in the equity markets the economic recovery is well underway, again though why are rates falling so quickly while the stock markets continue higher? Not a lot of folks willing to step into print or on TV to explain the rate declines on grounds other than the Fed isn't likely to raise rates for months and there is no inflation to be worried about. One positive for the bond market this morning; the 2009 fiscal yr budget deficit was much less than what had been talked about a few months ago; the deficit at $1.4T is about $400B less than what had been expected.

The weekly jobless claims released this morning were better than expectations, -33K filings to 521K new unemployment claims last week. Half a million a month going on unemployment is a positive in these times but still huge in historical perspective. Going in the right direction is how markets took it in the stock world. Continuing claims, those remaining on unemployment declined last week to 6.04 mil from 6.112 mil however, the 27 week limit on claims has expired on many unemployed. Obama will increase it soon and continuing claims will likely start increasing again.

This week had little in the way of economic data; tomorrow its the August international trade deficit; expected to be a deficit of $32.9B. Trade tomorrow will deal with the long three day weekend coming; the bond and mortgage markets will be closed on Monday for Columbus Day.

PRICES @ 4:00 PM

10 yr note: 103.06 -15/32 (.46 bp) 3.24% +5 BP

5 yr note: 100.24 -6/32 2.22% +4 BP

2 Yr note: 100.07 -1/32 0.88% +1 BP

30 yr bond: 107.05 -42/32 4.08% +7 BP

Libor Rates: 1 mo 0.244%; 3 mo 0.284%; 6 mo 0.597%; 1 yr 1.213%

30 yr FNMA 4.5 Nov: 101.16 -2/32 (-6/32 (.18 bp) frm 9:30)

15 yr FNMA 4.0 Nov: 101.27 -4/32 (.12 bp) (-5/32 (.15 bp) frm 9:30)

30 yr GNMA 4.5 Nov: 101.20 -5/32 (.15 bp) (-2/32 (.06 bp) frm 9:30)

15 yr GNMA 4.0 Nov: 102.18 -3/32 (.09 bp) (-4/32 (.12 bp) frm 9:30)

Dollar/Yen: 88.44 -0.14 yen

Dollar/Euro: $1.4781 +$0.0085 (dollar weaker)

Gold Dec: $1,057.50 +$13.10

Crude Oil Nov: $71.44 +$1.87

Goldman-Sachs

Commodity Index: 472.52 +13.48

DJIA: 9786.87 +61.29

NASDAQ: 2123.93 +13.60

S&P 500: 1065.48 +7.90