San Diego Home Mortgage Blog

Continue to float to start the session; keep focused on the rate alerts if prices flip we will cover and lock quickly. Much of the rest of the day will be driven by equity market action; so far this morning the stock market is slightly weaker.

Prior to 8:30 this morning the rate markets were flat, the stock indexes were up (DJIA +50); at 8:30 data hit. Sept PPI, expected at +0.1% for the overall and the core, was -0.6% for the overall and -0.1% when food and energy are extracted. Yr/yr overall -4.8% and the core yr/yr +1.8%. Inflation based on the PPI is continuing low with no immediate concerns of an increase in wholesale prices, a positive for the long end of the yield curve and mortgage rates. At 9:00 the 10 yr note +15/32 at 3.34% -5 BP, mortgage prices +7/32 (.21 bp) from yesterday's close; the DJIA +32. At 9:30 the DJIA opened -8, 10 yr note +19/32 at 3.32% -7 BP and mortgage prices +9/32.

Also at 8:30 Sept housing starts and permits; the headlines were weaker than market estimates. Overall starts were expected up 2.0% while permits were thought to be up 1.8%. Starts as reported were +0.5% to 590K units annualized and permits -1.2% to 573K. Under the covers however, single family starts were up 3.9% while single family permits were down 3.0%. Multi-family starts were down 15% accounting for the less than expected increase. Permits lower due to the still soft housing sector and weather concerns as winter approaches; no real need to increase starts with the tax credit winding down and uncertainty as to whether Obama will extend it. Realtors and homebuilders are lobbying the administration heavily for the extension of the tax credit; so far Obama is "taking a careful look at it" according to Tim Geithner. The real estate markets need more assistance, the tax credit should, and likely will be, extended. Unless housing is stabilized the US is in danger of slipping back, possibly a double dip recession; the overwhelming view is that will not happen however.

Taken as a package the two reports pulled the stock indexes back and fueled the bond and mortgage markets. As we have noted, the 10 yr note and mortgage markets are setting up in a range of about 20 to 25 basis points after testing and holding key technical support on the bellwether 10 yr note. On the note 3.50% to 3.25%, at 9:00 the 10 yr traded at 3.33%, holding at its 20 day moving average but back under its 40 day average; ditto for 30 yr mortgages.

Nothing more on the calendar today for the bond and mortgage markets; back to trading on the action in stock markets. Stocks are trading on the dollar that continues to decline. Momentarily good for US exports but in the long run and wider perspective not a good thing. The dollar and US economy are approaching a new level of importance in the global economy. In the past the US has been the driver for global growth, not so as we move forward from here. Asia is quickly being seen as the leading region for economic growth and replacing the US as the engine. The Obama administration isn't arguing; as the dollar slides equity levels increase based on the idea that to recover from the economic slump the US will have to increase its exports and to do so requires a collapsing dollar. Much of the better earnings being reported by businesses are due in some part to increased exports fueled by the dollar decline. The first time in 12 years the sitting administration has not tried to talk up the dollar when it has slumped; not that talk has much influence, but the lack of it is by inference a green light to sell the dollar.

Trade in the mortgage markets continues to be choppy and thin; any trade of size has the impact of moving prices 3 to 5/32. Tracking the 10 yr note as usual but a little more volatile than in treasury trading in the past few days.

The world’s largest economy, at least for now, probably expanded at a 3.2% annual pace from July through September, according to the median estimate of economists surveyed earlier this month. A week from this Thursday Commerce will report the advance GDP data for Q3.

At 10:00 the 10 yr is making a swift move to the low end of the yield trading range; at 3.31% it is 6 basis points frm where we expect resistance. Next week Treasury will sell approximately $120B of 2, 5s, and 7 yr notes; unlikely interest rates will fall back under 3.25% (10 yr) ahead of the auctions.

PRICES @ 10:00 AM

10 yr note: 102.18 +21/32 3.31% -8 BP

5 yr note: 100.15 +11/32 2.27% -7 BP

2 Yr note: 100.04 +2/32 0.93% -3 BP

30 yr bond: 106.13 +45/32 4.12% -7 BP

Libor Rates: 1 mo 0.245%; 3 mo 0.283%; 6 mo 0.585%; 1 yr 1.238%

30 yr FNMA 4.5 Nov: @9:30 101.02 +9/32 (.28 bp) (+12/32 (.37 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Nov: @9:30 101.19 +7/32 (.21 bp) (+10/32 (.31 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Nov: @9:30 101.09 +9/32 (.28 bp) (+14/32 (.43 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Nov: @9:30 102.09 +8/32 (.25 bp) (+12/32 (.37 bp) frm 9:30 yesterday)

Dollar/Yen: 90.41 -0.23 yen

Dollar/Euro: $1.4950 -$0.0020 (dollar better)

Gold Dec: $1062.20 +$4.10

Crude Oil Nov: $79.22 -$0.39

Goldman-Sachs

Commodity Index: 514.43 -0.60

DJIA: 10061.51 -30.68

NASDAQ: 2172.14 -4.15

S&P 500: 1094.26 -3.65