San Diego Home Mortgage Blog

Really not interested in holding rate locks (floating) today; however if you do, stay focused to our instant re-pricing alerts. Already this morning the equity markets are recovering early opening lows; unless stock markets are pressured not much likelihood of improvement in the bond and mortgage markets.

Treasuries and mortgages opened a little better early this morning on weaker trade in the equity market indexes in the futures markets. At 8:00 the 10 yr +3/32, mtgs +4/32 and the DJIA -65. At 8:30 the 10 yr +3/32, mtgs +4/32 and the DJIA -42. At 9:00 the 10 yr +4/32, mtgs -+2/32 and the DJIA -58. At 9:30 the DJIA opened -60, 10 yr +3/32 and mtgs +2/32.

Its the dollar stupid! Stock investors are doing the lemming thing, selling stocks every time the dollar strengthens. It is a daily happening, dollar stronger, stock indexes weaker. Why? Simply stated, most of the recovery in the equity markets in the US is backed by foreign investors using their strong currency to buy on the cheap and that leads them to the US. To keep the US economy from a double dip requires our currency to decline, or at the least not trend higher,a trend to dollar strength will deal a heavy blow to the idea that the US is moving out of recession. What a way to view the US these days; pound the dollar and watch the US economy recover. Not necessarily a total negative however, we need a better export market for US goods and services since in this country consumers, banks and businesses can't make it work out of this mess unless we let the buck decline.

Many of the individual stocks that have climbed are businesses that export. This is the first time in decades there has been absolutely no jaw-boning up the dollar by any administration. Agree, jaw-boning by saying the US wants a strong dollar is generally wasted breath, nevertheless today there are no voices whether wasted or not. The Fed, Treasury and Wall Street want a weak dollar that may eventually be a price too high to have paid. The US continues to lag global recovery; probably as it should be since it was our banks and our Wall Street that floated one biggest scams ever, making Bernie Madoff look like small potatoes. This morning the dollar index of the eight major currencies is the highest since early October, if the buck continues to improve equity markets and interest rate markets are likely to pay some price, lower stock prices and higher interest rates.

Two reports today; a few minutes ago at 10:00 Sept factory orders, expected to have been +0.9%, came right on forecasts, ex transportation orders +0.8%. Treasuries and mortgages took a slight hit on the initial reaction to the strong ex transportation sector. Later today Oct auto and truck sales will be dribbling out.

The FOMC begins its meeting this morning; nothing to be concerned with until tomorrow when the group issues its short statement. Traders are increasingly more concerned the Fed will move to tighten sooner rather than later; no time frame however to define the two outlooks. Inflation concerns after all the money printing to save the economy and the big banks are behind the fears. With interest rates at these historic lows no one wants to be holding fixed income investments if and when the Fed ends its balance sheet expansion. Not necessary to actually increase the FF rate to begin the extraction, the Fed's likely first step will be to drain reserves from the banking system with reverse repos. Regardless of how it is accomplished, the end is drawing near when the Fed deems it necessary to squeeze a little juice from the blender. Likely not immediate rate hikes, but by mid 2010; in the meantime markets will step ahead of the Fed's actual move(s). The statement tomorrow will be sliced and diced for clues; using divining rods analysts will uncover the hidden message coming in the statement.

Expecting another quiet day for the bond and mortgage markets. In the past 14 trading sessions with the exception of one day, the 10 yr note and mortgages have been in tight ranges; 3.38% to 3.50%, mtgs with the same range. No trend but don't get complacent, there is more potential for rates to increase than for rates to fall. Two events to face this week; tomorrow's FOMC statement and Friday's Oct employment report. Tomorrow the ADP estimate will light up increased focus on jobs and unemployment.

PRICES @ 10:10 AM

10 yr note: 101.20 -2/32 3.43% +1 BP

5 yr note: 100.07 unch 2.33% unch

2 Yr note: 100.05 +1/32 0.91% -1 BP

30 yr bond: 103.24 -7/32 4.27% +1 BP

Libor Rates: 1 mo 0.241%; 3 mo 0.278%; 6 mo 0.562%; 1 yr 1.181%

30 yr FNMA 4.5 Nov: @9:30 101.01 +3/32 (.09 bp) (-5/32 (.15 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Nov: @9:30 101.24 +1/32 (-1/32 frm 9:30 yesterday)

30 yr GNMA 4.5 Nov: @9:30 101.08 +3/32 (.09 bp) (-5/32 (.15 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Nov: @9:30 102.15 +2/32 (.06 bp) (-2/32 (.06 bp) frm 9:30 yesterday)

Dollar/Yen: 90.36 +0.05 yen

Dollar/Euro: $1.4650 -$0.0114 (dollar weak)

Gold Dec: $1060.80 +$6.80

Crude Oil Dec: $77.19 -$0.94

Goldman-Sachs

Commodity Index: 499.57 -4.06

DJIA: 9782.03 -7.31

NASDAQ: 2044.79 -4.41

S&P 500: 1042.78 -0.10