San Diego Home Mortgage Blog

We continue to expect interest rates to fall further; technically both mortgages and the treasury markets hold bullish indicators but they remain in the grip of stock markets that refuse to buckle yet. Mortgage prices at 4:00 are unchanged from levels this morning. Aggressive lenders may hold a small long position (locked loans) but the prudent move is to lock overnight.

First off, the $20B 10 yr note went well today,

the same as with all treasury offerings over the past two months. The interest rate at 3.51% was slightly higher than what we would have liked but the cover at 2.77 and indirect bidders taking 55% of it showed good demand. Interesting; as the stock market drifts sideways over the past five weeks interest rates have fallen and demand for Treasury debt has stayed strong even with the dollar declining. So far not much talk about the moves but we believe, as we noted in previous comments, that the big players are increasing their hedging bets against a turn lower in the stock markets.

Earlier today Treasury sold $22B of 1 mo bills attracting bids of $66B. The demand for notes and bills at these interest rate levels may be in part concerns that the stock market and its wild eyed pundits has run its course. The market has not been this bullish for 10 yrs if we base it on the endless stream of Streeters being paraded daily on CNBC. No job growth, the largest decline in consumer credit since WW II, unemployment likely to run over 10.0% and stay there for a long time, credit as tight as a snare drum, and the housing markets still struggling with foreclosures and declining values; these are the building blocks for the equity market bulls that are now so bold as to see this as the strongest stock market rally ever. After all those are all lagging indicators according to the wisdom of the day.

The Fed's Beige Book was out at 2:00 this afternoon; generally about what was expected. The Fed sees stabilization or economic improvement in all but one of the 12 districts, the end of the recession and economic growth coming. Unemployment however, based on the Fed analysis will remain high for much longer and before topping out will likely exceed 10%. The central bank survey indicates that while the worst of the downturn may be past, the economy has yet to show broader growth. The outlook among many business contacts was “cautiously positive,” and some auto-industry contacts told the Fed the sales increases from government “cash-for- clunkers” subsidies may be temporary. The labor market “remained weak across all districts,” while some regions reported an “uptick in temporary hiring and a decline in the pace of layoffs,” the Fed said.

Barney is baaaack! Barney Frank, after a peaceful month, the mouth of Mass is rampaging again with his power ego on high. Frank, and Cuomo in NY, together have been doing more harm and posturing to the housing industry than any politicians in the past millennium. Both seem to want to wreck the mortgage and real estate markets with their sanctimonious moves; HVCC and Barneys lack of understanding and incompetence are a serious danger to the real estate and mortgage markets. 'Brainy' is now threatening servicers that are working diligently to modify troubled mortgage loans that he will attach a bankruptcy cramdown provision to a regulatory reform bill if servicers don't speed up the loan modification process. If the frustration over voluntary modifications continues to build, he said, it will make it easier to pass a provision that allows bankruptcy judges to modify mortgages on a primary residence. In the meantime; according to Treasury, the 45 Home Affordable Modification Program servicers are now on track to meet the Obama administration's initial goal of starting 500,000 trial modifications by Nov. 1, according to Treasury assistant secretary Michael Barr. Servicers participating in the administration's Home Affordable Modification Program had over 360,000 homeowners in 90-day trial modifications as of Aug. 31, up from 235,000 in July. Barney the Frank is having his 15 minutes, but while he basks in his ignorance he is on track to do almost as much harm as the rating agencies did to the global economy.

Tomorrow at 8:30 weekly jobless claims are expected to decline by 5K to 10K; there has been little net movement recently with the four-week average standing at 571,250. Continuing claims have been generally moving lower since early July, unfortunately reflecting the expiration of benefits and not necessarily new hiring. Nonetheless, continuing claims rose in data for the August 22 week, up 92,000 to 6.234 million. At 1:00 tomorrow Treasury will sell $12B of 30 yr bonds, concluding the deficit borrowing for the next two weeks when Treasury is back for more with 2 yr, 5 yr and 7 yr notes. Also tomorrow the July trade deficit is expected to be $27.5B.

PRICES @ 10:00 AM

10 yr note: 101.08 +2/32 3.48% -0.5 BP

5 yr note: 100.01 +3/32 2.37% -3 BP

2 Yr note: 100.04 +1/32 0.92% -2 BP

30 yr bond: 102.29 +2/32 4.32% unch

Libor Rates: 1 mo 0.245%; 3 mo 0.298%; 6 mo 0.688%; 1 yr 1.266%

30 yr FNMA 4.5 Oct: 100.09 +3/32 (.09 bp) (+2/32 (.06 bp) frm 10:00)

15 yr FNMA 4.0 Oct: 100.26 +2/32 (.06 BP) (+4/32 (.12 bp) frm 10:00)

30 yr GNMA 4.5 Oct: 100.14 +1/32 (+2/32 (.06 bp) frm 10:00)

15 yr GNMA 4.0 Oct: 101.15 +4/32 (.12 BP) (+3/32 (.09 bp) frm 10:00)

Dollar/Yen: 92.06 -0.21 yen

Dollar/Euro: $1.4554 +$0.0067 (dollar weaker)

Gold Dec: $989.70 -$10.10

Crude Oil Oct: $71.32 +$0.22

Goldman-Sachs

Commodity Index: 457.16 +2.83

DJIA: 9547.22 +49.88

NASDAQ: 2060.39 +22.62

S&P 500: 1033.37 +7.98