San Diego Home Mortgage Blog

Continue to float this morning but stay close to our rate alerts and re-pricing alerts.

At 8:30 the 10 yr note traded +3/32 and mortgages started the day +2/32. At 9:00 some minor pullback, the 10 yr note -1/32, mortgage prices -2/32, the DJIA futures -24. At 9:30 the DJIA opened -12, the 10 yr unchanged and mortgages +1/32.

Sept durable goods orders was out at 8:30; +1.0% right in line with estimates. Ex transportation orders that are very volatile, orders were +0.9%; non-defense capital goods orders were +2.0% against forecasts of +0.9%. August durables were revised better to -0.8% frm -2.4% originally reported last month. A good number for the economy but didn't generate any significant movement in bonds or the stock index futures markets.

Sept new home sales, expected to be +2.5% at 440K, took a hit, down 3.6% to 402K units annualized. The decline shocked markets, sending the stock market lower and added to the rally in the bond and mortgage markets. There is a 7.5 month supply, up from 7.3 months in August. The medians sales price $204.800, down 9.1% on a yr/yr basis.

At 1:00 the second of three auctions; $41B of 5 yr notes. Yesterday's strong bidding for the 2 yr note added conviction that the rest of this week's borrowing will meet with strong demand. In the past four months the demand from foreign investors for US debt has been overwhelmingly strong; the weakening dollar has been one key driver for foreign investment, not only for Treasury debt but in the equity markets also. Countries with comparative strong currencies find dollar denominated investments cheap; keep the dollar weak and foreign investment will likely continue to impress.

Monday the 10 yr note cut through what we considered strong support at 3.50% when it exploded to 3.57%. Yesterday with no follow-through selling the jump in rates on Monday may have been no more than running stops that had built up just above 3.50%, traders can sniff out big stop positions like blood hounds at the slaughter house. Still unwilling however to abandon our negative overall outlook for interest rates in the wider picture. To change our outlook for the longer view the 10 yr yield has to fall back to 3.33% to 3.25%, and that we do not expect. Nevertheless, from a trading perspective we will always go with the market regardless of what we believe in the larger perspective. Next week the FOMC will meet (11/3 and 11/4); at the meeting discussions will center on more talk about when and how to begin taking the punch bowl away. Not likely anytime soon however, but markets are already adjusting to the outlook that the path for interest rates in 2010 is likely to be up. Expect the Fed to keep the FF rate at zero, the first moves will be to wind down quantative easing. There is a wild card that remains unplayed that may change the outlook for increasing rates in 2010. Yes my lovelies, it is the equity market.

Watch out, Politics is about to get in the mix and dilute the Fed's autonomy and independence. A proposal in Washington gaining momentum, Treasury will have to be consulted whenever the Fed has to step out of its norms as it did with the Bear Stearns, Lehman and Merrill Lynch deals as the financial system was crumbling. Treasury is a political body, the Fed is an independent body; mixing politics in Washington into any future crisis will likely be a cluster. The Fed does need oversight but there has not been a Treasury department that has functioned well in a crisis; case in point, Treasury made no effort to force those that took TARP money to say what they were doing with the money. Just one example, but mixing the political process into Fed decisions is a dangerous precedent to set. Politics and effective monetary policy is a huge oxymoron. The Federal Reserve was set up to be independent to keep politics out of key momentary decisions to keep the US fr

PRICES @ 10:10 AM

10 yr note: 101.22 +9/32 3.42% -3 BP

5 yr note: 100.05 +5/32 2.34% -4 BP

2 Yr note: 100.03 -1/32 0.95% unch

30 yr bond: 104.03 +12/32 4.25% -3 BP

Libor Rates: 1 mo 0.242%; 3 mo 0.280%; 6 mo 0.570%; 1 yr 1.208%

30 yr FNMA 4.5 Nov: @9:30 100.24 +1/32 (+13/32 (.40 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Nov: @9:30 101.14 +2/32 (+9/32 (.28 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Nov: @9:30 100.31 +1/32 (+15/32 (.47 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Nov: @9:30 102.05 +3/32 (+10/32 (.31 bp) frm 9:30 yesterday)

Dollar/Yen: 91.12 -0.65 yen

Dollar/Euro: $1.4800 -$0.0009

Gold Dec: $1038.10 +$2.70

Crude Oil Dec: $78.91 -$0.64

Goldman-Sachs

Commodity Index: 507.54 -3.41

DJIA: 9856.32 -25.85

NASDAQ: 2101.13 -14.96

S&P 500: 1056.85 -6.56