San Diego Home Mortgage Blog

Have no interest in floating today. Keep locked through the day. Potential volatility; keep close to our Instant Re-pricing Alerts that accurately caught the re-pricing ahead of lenders yesterday.

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Treasuries and mortgages traded fractionally weaker in very early activity this morning after a very serious sell-off yesterday. As we noted in yesterday's morning commentary, the mortgage market had become excessively overbought technically. The selling yesterday was accentuated by loan originators heavily long by floating moved rapidly to lock floating loans. After three weeks where mortgage prices closed lower on the day only three times since the beginning of November, it was an event destined to occur, and yesterday we had it.

At 8:00 AM this morning the 10 yr note traded -2/32, mortgages -4/32 (.12 bp); at 8:15 the ADP employment report hit with more job losses than what had been expected. ADP said private jobs were down 169K with forecasts at -150K, the increased job declines over forecasts put a slight bid in treasuries with the 10 yr note at 8:45 +2/32 and mortgage prices +1/32 (.03 bp) frm the close yesterday. At 9:00 mtg prices -1/32 (.04 bp) with the 10 yr note +2/32 (.06 bp); the DJIA at 9:00 -10. At 9:30 the DJIA opened -11, the 10 yr unchanged and mortgages -2/32 (.06 bp).

The ADP report is sending economists back to the drawing board to assess the possibility the BLS official employment report on Friday may show more lost jobs than the 100K that had become the consensus (the range between -160K to -75K). It is the 22nd month of job declines on the ADP, but the 8th month in a row the losses were less than the previous month. After overestimating payroll losses by 103K on average in the five months to September, ADP’s initial estimate for October was in line with the government’s payroll figures; Friday will tell us whether ADP is once again tracking well against the BLS data. The data clearly indicates there will be continued losses and higher unemployment rate, lasting longer than the optimistic equity market is anticipating. BLS estimate is for the unemployment rate to be unchanged at 10.2%.

At 7:00 this morning the weekly MBA mortgage applications showed a slight increase in all applications. Up 4.1% in the holiday shortened Nov. 27 week. The refinance index rose 1.7%. Low rates are a big plus for mortgage demand with 30-year loans averaging 4.79%, down 3 basis points for the lowest rate since May.

Nothing left now until this afternoon when we get Nov auto and truck sales, expected to be a little better than in October. At 2:00 the Fed will release its Beige Book on the status of the economy.

Tomorrow Bernanke will go the Senate for his confirmation hearing for his re-appointment. He will be confirmed, no doubt; but it will be a venting process as many in Congress want to lay blame on the Fed for its handling of the bailouts of banks and its roll in the economic collapse by not monitoring banks more closely. Some of the blame is deserved, but it wasn't all the Bernanke Fed, the Greenspan Fed has a lot of responsibility for this recession. Greenspan saw the irresponsible mortgage lending happening, he commented on it more than a few times calling it a bubble then sat there with unreasonably low interest rates and watched it unfold. The Fed does have egg on its collective face but Bernanke is the best we have now. His re-appointment will not likely end Congresses ire, whether over-baked or not.

Also tomorrow Pres Obama is gathering corporate leaders for a jobs summit in Washington. Obama administration is at a loss as to what to do, if anything. Job losses continue with little reason to expect they will stop anytime in the next six months. More job stimulus? That will add heavily to the already exploding budget deficits. Obama made a big mistake by under-estimating the magnitude of the economic collapse, instead putting all efforts to pass health care. Should have put the economy first and health care for another day. That said, it is unlikely there was much that could be done to stop the inevitable economic slide.

After the beatdown in prices yesterday at the long end of the curve and in the mortgage markets, today may be quiet as traders assess the action and with employment on Friday and the Obama jobs summit tomorrow. And lest we forget, Treasury will announce the amounts for next week's bi-weekly auctions (3s, 10s and 30s). The employment report on Friday, the jobs summit tomorrow and supply next week; and after heavy selling yesterday, markets are likely to be flat today.