San Diego Home Mortgage Blog

 The 10 yr has taken out its support at 3.28%, the next level of support is right where the market is at 10:00, 3.32%, the 20 day moving average. We suggested locking yesterday, still really don't like the risk. Do NOT float today!

August trade deficit was slightly better than expected, -$30.71B against estimates of -$33B; no reaction to it as usual. The world knows the US runs trade deficits, importing a lot more than exporting. There are no more data feeds the rest of the day. Today is all about Fedspeak; Fed officials are speaking everywhere today. Lockhart of ATL (8:30) vice-chair Kohn (12:00) and St. Louis's Bullard (2:00).

Last night Bernanke reiterated again that he will be ready to remove stimulus when "the economy has improved sufficiently". “My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period,” he spoke at a Board of Governors conference in Washington last evening. “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.” “Looking at the amount of excess capacity in the economy, looking at the low rate of inflation, we believe that conditions will warrant policy accommodation for an extended period,” he said. As the outlook for an economic recovery remains on the present path markets will hang on every word from Fedsters and other central bankers about when the accommodative party will end. Not likely however, at least for the next six months. Yesterday the Bank of England and the European Central Bank left their rates unchanged. Earlier this week Australia raised its base rate by 25 BPs, the first G-20 country to do so.

Most economists surveyed by Bloomberg are rather pessimistic on the outlook for increased consumer spending in Q4; with unemployment exceeding 10% next year consumers are likely to refrain from the pace of spending in the past quarter. According to the survey of 50+ economists consumer purchases will increase just 1.0% this quarter after increasing 2.4% in Q3. Household spending will grow at a 1.5% pace in the first three months of 2010, and 1.8% in the second quarter, the survey showed. Obama is considering, and likely will do it, extending the first time homebuyers credit, extending unemployment insurance past the current 27 weeks (if that occurs continuing unemployment claims will increase again after recent declines). Obama is also likely to increase job growth by increasing spending on transportation projects. Still a huge cluster however; it is uncertainty about where we are in the recovery that will keep the ball in the air. More spending will add more pressure on the declining dollar as the US runs up deficits that until two years ago were literally unimaginable.

The US, world’s largest economy, contracted 3.8% in the year ended in June, the worst economic slump since the 1930s.

Normally when a market holiday occurs on Monday the bond and mortgage markets close the previous Friday at 2:00; today not the case, markets will not close early. Not a big deal except for traders looking for an early exit.

The long end of the yield curve (10 yr and 30 yr issues) and mortgage rates may have bottomed in terms of the recent rate declines. The 10 yr note, driver for the mortgage markets, hit 3.10% last Friday on the initial reaction to the higher than expected job losses in Sept but rebounded to close at 3.18% that day. Since then the 10 yr note rate has slowly increased to 3.31% at 10:00 this morning and mortgage rates, while holding well against the increase on the 10 yr, are also edging higher. We do not expect the 10 can fall below 3.00% unless the outlook for the economy swings 180 degrees from the current overwhelming consensus that the worst is behind us and recovery will continue. 30 yr bond traded briefly under 4.00% yesterday morning (3.96%) until the auction; the 30 yr is unlikely to fall below 4.00%. Mortgage rates for 30 yr fixed with 20% down are not likely to decline much more from present levels if the economic recovery outlook remains as it is now.

PRICES @ 10:00 AM

10 yr note: 102.19 -15/32 (.46 bp) 3.31% +5 BP

5 yr note: 100.10 -12/32 2.31% +8 BP

2 Yr note: 100.02 -4/32 0.96% +7 BP

30 yr bond: 106.17 -11/32 4.12% +2 BP

Libor Rates: 1 mo 0.245%; 3 mo 0.284%; 6 mo 0.596%; 1 yr 1.222%

30 yr FNMA 4.5 Nov: @9:30 101.10 -4/32 (.12 bp) (-11/32 (.34 bp) frm 9:30 yesterday )

15 yr FNMA 4.0 Nov: @9:30 101.22 -5/32 (.15 bp) (-9/32 (.28 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Nov: @9:30 101.18 -4/32 (.12 bp) (-12/32 (.37 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Nov: @9:30 102.13 -4/21 (.12 bp) (-9/32 (.28 bp) frm 9:30 yesterday)

Dollar/Yen: 89.56 +1.07 yen

Dollar/Euro: $1.4725 -$0.0063 (dollar better)

Gold Dec: $1,050.40 -$5.90

Crude Oil Nov: $72.03 +$0.34

Goldman-Sachs

Commodity Index: 473.98 +1.46

DJIA: 9810.30 +21.69

NASDAQ: 2131.16 +7.23

S&P 500: 1067.51 +2.03