San Diego Home Mortgage Blog

We do not want to float overnight. Still underlying volatility that increases risk either side of a trade. Keep locked overnight.

A nice recovery bounce today; as noted last week we continue to expect interday volatility through the week. After the overdone selling on Friday today the 10 yr note has managed to recover more than half of the hit taken Friday while mortgage prices have clawed back to recover almost all of the price declines on Friday. Mortgage remain more technically solid than the treasury markets, likely based on continued buying of mortgages by the Fed. Investors should be looking to mortgages at these levels and with the low appraisals and tight underwriting making newly originated mortgages attractive; no re-financings of loans made at the 5.00% area likely.

Treasuries fell last week (price) after Fed Chairman Bernanke said policy makers will tighten monetary policy once the economic outlook improves. The Fed will hold off raising interest rates until its August 2010 meeting, according to a October survey of 47 economists by Bloomberg News. The rally today is being attributed to the dollar decline, suggesting foreign investors may continue to buy US treasuries as they become cheaper as the dollar falls; however, as the dollar declines the value of the purchases does erode.

All of the reasons for the selling last week, as noted in the morning commentary are being jettisoned today. The take away from it is that markets become very nervous when the 10 yr note approaches 3.00% area. One day its inflation fears and concern the Fed will begin taking liquidity out of the market, the next day its no concern as the outlook for Fed tightening is months away. Have to come up with reasons for big moves, so today its don't worry be happy compared to Friday's 'its all over but the shouting'. Bottom line, rate markets are unlikely to increase in rate much but equally will not decline much from these levels. Still predicting a range for the note at 3.25% to 3.50%, mortgage rates hovering just slightly above 5.00%.

Fed bought $2.949B of the $13.484B dealers tried to unload in 2016 to 2019 maturity range. There is less than $3B left out of the $300B planned, which is not fazing bonds much. The Fed does however have a pocket full of change to continue buying mortgages on the pledge to buy $1.25T by the end of Q1 2010. With the treasury buys at the end the mortgage markets may see increasing support as investors turn attention to where the Fed is buying. That said however, mortgage rates are not likely to move lower while treasuries move higher in rates. The take away, mortgage prices should hold well against treasuries as they have ion the past 10 days.

Tomorrow morning (8:30), Sept retail sales are likely to be down 2.1% after jumping 2.7% in August on the back of clunker sales. Taking auto sales out of the overall, sales are expected to be +0.3%. Earlier at 7:00 the weekly MBA mortgage applications data; not much interest in it from traders but interesting to mortgage market participants. The minutes from the 9/23 FOMC meeting will be out at 2:00 tomorrow, nothing new but may provide some clarity.

Here comes the health reform legislation; the Senate committee passed its bill this afternoon; now on to the full Senate for a vote. Another step toward a big brother country. Absolutely no way this bill or any other bill will not cause health care costs to rise significantly. Like global warming, those that want it do not care about the facts.

PRICES @ 4:00 PM

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

5 yr note: 100.16 +12/32 2.27% -8 BP

2 Yr note: 100.07 +5/32 0.89% -8 BP

30 yr bond: 105.19 +33/32 4.17% -6 BP

Libor Rates: 1 mo 0.245%; 3 mo 0.284%; 6 mo 0.595%; 1 yr 1.239%

30 yr FNMA 4.5 Dec: 100.28 +10/32 (.31 bp) (+1/32 frm 9:30)

15 yr FNMA 4.0 Dec: 101.12 +8/32 (.25 bp) (+2/32 (.06 bp) frm 9:30)

30 yr GNMA 4.5 Dec: 101.01 +11/32 (.34 bp) (unch frm 9:30)

15 yr GNMA 4.0 Dec: 102.00 +6/32 (.18 bp) (+1/32 frm 9:30)

Dollar/Yen: 89.79 -0.02 yen

Dollar/Euro: $1.4824 +$0.0064 (dollar weaker)

Gold Dec: $1,061.90 +$4.40

Crude Oil Nov: $74.20 +$0.93

Goldman-Sachs

Commodity Index: 488.26 +4.55

DJIA: 9871.06 -14.74

NASDAQ: 2139.89 +0.75

S&P 500: 1073.21 -2.98