Don't get greedy; mortgage prices have improved from morning pricing levels. We will hang in there at least into Monday. With less job losses in Sept being predicted for next Friday and the 10 yr about to test its technical resistance rate at 3.28% next week, until employment hits the 10 yr and mortgages may run out of rally juice early in the week.

The bellwether 10 yr note is in sight of its resistance level of 3.28%; the note bashed off its support at 3.50% seven consecutive sessions and now will likely try the other end of the range that goes back to August 17th. Whether it can break through resistance will be determined by whether the equity markets actually will retrace some of its recent rally; looks like it finally will if traders' and investors' fears of missing the boat wane. Someone or something has to start the run down but those that have tried it recently have been swept aside like leaves in a fall blow; possibly the August employment report out next Friday. Equity markets are as weak technically now than in the last three months, ripe for a reversal if there is a trigger.

The Fed headliner today, Fed Governor Warsh. In his op-ed piece in the Journal this morning saying the Fed may have to tighten sooner and with more force than markets expect now. His comments in the article and again this afternoon in Chicago have underpinned the rate markets at the long end of the curve (10s and 30s), lessening concerns that inflation will get out of hand if the Fed doesn't get ahead of it. The "non-traditional programs" are policies put in place "during the panic were designed to atrophy...as market conditions improved." While the the decision to remove policy accommodation...may prescribe that it be accomplished with greater swiftness than is modern central bank custom." He hammered the point again, comparing the "speed and force" seen in the rush to apply bailouts and stimulus with what may need to be a speedy approach to tightening, or "removal of accommodation." he said in Chicago this afternoon.

August durable goods orders weaker than expected, August new home sales weaker than expected; but the U. of Michigan consumer sentiment firmer than expected. Of the three reports this morning we can toss the U. of Michigan sentiment index out as a knee jerk reaction rather than anything substantive. Normally we focus more attention to the consumer sentiment and consumer confidence reports but these days the indexes are more a reflection of various government stimulus programs than improvement in jobs or economic growth; most consumers believe what Wall Street says, most don't fully grasp what the Street actually did to bring the global economies to the edge. Weaker home sales in August and and orders for longer lasting goods carry much more weight in the markets.

This week, a nice decline in long term interest rates, including mortgage rates; the short end of the curve however is ending the week unchanged for the 2 yr note. The 10 yr note yield declined 15 basis points, mtgs -10 basis points. Mtg prices on 30s +20/32, FHA 30s +18/32, 15s +20/32. 2 yr note yield -2 BP, 5 yr note -10 BP. The DJIA -151. NASDAQ -42, S&P -24.

Next week its monthly employment on Friday that will take most of the attention. (Early estimates floating around are for job losses to drop substantially to 160K from August decline of 216K) Next week is the end of Q3 and may provide some increase in market volatility. Most of the focus through the week will continue to be on the potential of a stock market correction; nothing new there, markets have talked of nothing else for the past few weeks, but so far no cigar. The benefit of a swing lower in equities is lower interest rates and opening the door for more re-financing opportunities. Pending whether it actually occurs, and how deep, mortgage rates could (not forecasting it however) reach that 4.5% that the NAR forecast a year ago. To see that level however, it would require a major and unlikely substantial change in overall market sentiment about the outlook for economic recovery. With early estimates of a big drop in job losses in Sept, if we actually see it, the stock market won't likely correct much.

HAVE A NICE WEEKEND!

PRICES @ 4:00 PM

10 yr note: 102.17 +16/32 3.32% -6 BP

5 yr note: 100.02 +2/32 2.36% -1 BP

2 Yr note: 100.01 -3/32 0.98% +4 BP

30 yr bond: 106.31 +47/32 4.09% -8 BP

Libor Rates: 1 mo 0.246%; 3 mo 0.282%; 6 mo 0.636%; 1 yr 1.237%

30 yr FNMA 4.5 Nov: 100.23 +5/32 (.15 bp) (+8/32 (.25 bp) frm 10:00)

15 yr FNMA 4.0 Nov: 101.10 +3/32 (.09 bp) (+5/32 (.15 bp) frm 10:00)

30 yr GNMA 4.5 Nov: 100.30 +5/32 (.15 bp) (+7/32 (.21 bp) frm 10:00)

15 yr GNMA 4.0 Nov: 102.00 +3/32 (.09 bp) (+5/32 (.15 bp) frm 10:00)

Dollar/Yen: 89.84 -1.42 yen

Dollar/Euro: $1.4669 +$0.0010

Gold Dec: $990.90 -$8.00

Crude Oil Nov: $66.02 +$0.13

Goldman-Sachs

Commodity Index: 440.92 -0.77

DJIA: 9665.19 -42.25

NASDAQ: 2090.92 -16.69

S&P 500: 1044.39 -6.40