San Diego Home Mortgage Blog

Float rate locks over night, nice rally since morning pricing levels.

The $16B 30 yr auction hit at 4.469% with a 2.26 cover and an indirect bidder take of 44%. That was not pretty for the final refunding leg to go with the results showing sketchy demand at higher yields. The market was looking for a 4.44% yield in the WI traded this morning, but even the "natural" buyers, funds and the like, were demanding additional juice for the long duration. The previous, re-opened October 30 yr was sloppy also; $12B seeing 4.009% with a 2.37 and an indirect take of 34.5%. The September auction went off just fine. Bid-to-cover has averaged 2.43 over the 8 auctions in 2009 with an average 42.7% indirect take in that time.

The initial knee jerk was just that, a jerk led response sending the 10 yr note yield up to 3.53% from 3.45%, down 20/32, mortgage in their razor thin market dropped 10/32 in price. The whole reaction lasted fifteen minutes before the long end and mortgages found support. Through the rest of the day the 10 yr and mortgages managed improvement with most of it in the mortgage area.

Nothing these days has generated any real movement in the bond and mortgage markets unless one looks to day-to-day chop; other than that the 10 yr note and mortgages have essentially flat-lined for the past 10 weeks. Can't take the long end of the curve lower because investors simply won't buy at lower rates with concern of inflation and economic growth driving most thinking. Concerns that Pres Obama will crank up another stimulus, printing money and wasting it but keeping interest rates from declining. As for rate increases, that is the path we will see as we move into 2010; the only caveat is the well-worn one; a change of view on the economic outlook. As long as investors continue to bet that the economy is recovering there is little chance interest rates can decline much from these levels and a much better chance rates will increase.

The Fed and the administration are doing everything possible to keep rates from increasing. Finally the administration and Congress are getting it; until the housing markets are corrected there isn't much in the way of appreciable growth or job market improvements. For almost two years Washington and Wall Street have focused every waking hour on saving the big banks and the financial system, while Barney Frank and his headline grabbing dufusses look for any way possible to throw up roadblocks with inane regs and rules. Don't you wish that man was in your district so you could pull the plug on him? This Congress has done very little to aid recovery; what they have been doing is using this crisis to get additional toeholds in our personal and business lives. It is the most blatant grab of government control ever conceived in 80 years and sooner rather than later we are all going to pay dearly for letting it happen.

This morning the weekly MBA mortgage applications index was +3.2% from last week; it was all re-finances, its index up 11.3% while purchase applications dropped a huge 11.7% to its lowest level since Dec 2000. The refinance share of mortgage activity increased to 71.5% of total applications from 66.1% the previous week. The average interest rate for 30-year fixed-rate mortgages decreased to 4.90% from 4.97%, with points increasing to 1.03 from 1.01 (including the origination fee) for 80% LTV. The contract rate is the lowest observed in the survey since the week ending May 15th, 2009, when it was 4.69%. The average interest rate for 15-year fixed-rate mortgages remained unchanged at 4.33%, with points decreasing to 1.15 from 1.33 (including the origination fee) for 80% LTV loans.

Treasury reported the Oct budget data this afternoon; not good. The Oct federal deficit was higher than expectations. At $176.4B against expectations of between -$150B and -$160B. Sept deficit as -$155B. In 2005 the total annual budget deficit was $380B; the last two months almost matched the entire year's deficit. Lot of talk about in Washington but no actual concern; grabbing more power and control over 250 mil people is costly. Next up, President Obama will be setting up a commission to work on the deficit; hard to believe that it takes some kind of elite commission to say don't spend until you cut something.

The dollar had a good day for a change; and what we got was a decline in the stock market, a decline in oil prices and a decline in gold. Back in the day a strong dollar was something to be proud of, today a strong dollar is a plague on markets.

Tomorrow at 8:30 the Sept trade balance; a deficit of $31.9B is expected. At 10:00 the U. of Michigan consumer sentiment index is expected to be a little better than at the end of Oct, at 71.8 frm 70.6.

PRICES @ 4:00 PM

10 yr note: 99.13 +4/32 3.44% -2 BP

5 yr note: 100.17 +4/32 2.26% -3 BP

2 Yr note: 100.11 +1/32 0.81% -2 BP

30 yr bond: 101.23 +10/32 4.39% -2 BP

Libor Rates: 1 mo 0.238%; 3 mo 0.272%; 6 mo 0.524%; 1 yr 1.098%

30 yr FNMA 4.5 Dec: 101.13 +9/32 (.28 bp) (+12/32 (.37 bp) frm 9:30)

15 yr FNMA 4.0 Dec: 102.00 +8/32 (.25 bp) (+8/32 (.25 bp) frm 9:30)

30 yr GNMA 4.5 Dec: 101.19 +8/32 (.25 bp) (+10/32 (.31 bp) frm 9:30)

15 yr GNMA 4.0 Dec: 102.24 +8/32 (.25 bp) (+8/32 (.25 bp) frm (9:30)

Dollar/Yen: 90.39 +0.54 yen

Dollar/Euro: $1.4839 -$0.0138 (dollar stronger)

Gold Dec: $1103.40 -$11.20

Crude Oil Dec: $76.64 -$2.64

Goldman-Sachs

Commodity Index: 503.73 -9.46

DJIA: 10197.47 -93.79

NASDAQ: 2149.02 -17.88

S&P 500: 1087.24 -11.27