San Diego Home Mortgage Blog

Continue to float, but remain cautious. Moves like the past two days don't usually continue for long.  10 yr rate still over its key 20 and 40 day averages.

Another solid Treasury auction this afternoon; the only hitch, the rate was higher than in the when-issued trading this morning. The $41B 5 yr note went at 2.388%, WI trade this morning at 2.375%. Cover was solid at 2.63 dollars bid fore every dollar sold; indirect bidders (foreign investors) took over half of it, 54.8%. The cover was the best since October 07, with the indirect take near the best since August and well above the year's average. The previous, smaller $40B offering saw a 2.40 bid-to-cover and an indirect bidder take of 44.8%. The average over the 09 auctions of 2.22 and 43.1%. Initially the bond and mortgage markets saw a little selling but by 2:00 both the 10 yr and mortgages were back to their best levels of the session.

Tomorrow Treasury will sell $31B of 7 yr notes, while the farther out the curve Treasury goes the lower the demand, tomorrow's auction is expected to do well based on the appetite for the 2 and 5 yr notes. After tomorrow we get a week to forget auctions until next Wednesday when Treasury will announce the following week's quarterly refunding (Nov 9, 11, and 12) of 3 yr, 10 yr and 30 yr auctions.

The stock market appears to be running on weakening bullish momentum recently; the recent economic data has been weaker than the estimates that had been stoked higher by economists as the unreasonable euphoria fed on itself as the stock market worked higher. Today was the most recent weaker report with Sept new home sales, expected to be +2.4% fell 3.6%; Sept existing home sales however were up 9.4% on the first time homebuyers tax credit. Consumer confidence is weakening again after edging up slightly through the summer, in Oct it fell to 47.7 frm 53.3 and on forecasts of 53.1. Still somewhat of a mixed picture but not nearly as optimistic as equity investors were betting on.

Tomorrow weekly jobless claims at 8:30 are expected to be down 6K to 525K with continuing claims declining to 5.915 mil from 5.923 mil. Markets were focusing on continuing claims this past summer but now with the 27 weeks of unemployment running out for many still unemployed, declining claims are no longer the bellwether they were. Also at 8:30 the first look at Q3 GDP (the advance report), markets think +3.2% from -0.7% in Q2.

Tomorrow the Fed will complete its promised buying of $300B of treasuries it made last March. MBS purchases still have more to go but the pace will slow as the plan now is to extend the $1.25T of MBS purchases from the end of this year to the end of next March. It is a rather worrisome that when the Fed finishes its commitment what may happen to mortgage rates given that for all intents and purposes the MBS market is still a piece of burnt toast. Almost every mortgage originated has been sent to Fannie, Freddie or FHA and in turn about half of this year's projected $2.1T of new loans has been offset by the Fed's purchases. Look for the Fed to consider more MBSs.

We made a big deal out of Monday's brake above 3.50% on Monday afternoon. Well toss it in the recycle bin; fortunately it didn't hold and since Monday the 10 yr note yield has declined 14 basis points along with mortgages. 3.50% remains a brick with the other end of the range cemented at 3.25% at best. Trading takes an agile mind and quick ability to know when a fake out occurs; it was nothing more than running stops. Once traders took out weak longs it has been back to the range that has defined the bond and mortgage markets since mid-August.

Many lenders re-priced better this afternoon; after the failure of the 10 yr note to hold above its chart support at 3.50% and the strong auctions, buying has been strong. Mix in what appears to be a correction in the making for the equity markets and we MAY have a chance to test the low end of the range, about 15 basis points lower for mortgages and treasuries. That said, the rate markets have made a sizeable move lower in the past two sessions, the next moves lower may not be so easy. FOMC meeting next week and the October employment report may take some of the bravado away from investors and traders. Don't get too greedy here, getting excessively long the market.

PRICES @ 4:00 PM

10 yr note: 101.24 +11/32 3.41% -4 BP

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

2 Yr note: 100.03 unch 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: 101.04 +13/32 (.40 bp) (+12/32 (.37 bp) frm 9:30)

15 yr FNMA 4.0 Nov: 101.22 +10/32 (.31 bp) (+8/32 (.25 bp) frm 9:30 )

30 yr GNMA 4.5 Nov: 101.10 +12/32 (.37 bp) (+11/32 (.34 bp) frm 9:30)

15 yr GNMA 4.0 Nov: 102.12 +10/32 (.31 BP) (+7/32 (.22 bp) frm 9:30 )