San Diego Home Mortgage Blog

Keep locked and do not float over night. Technically the bond markets added to the bearishness with the break of support at 3.50% for the 10 yr note.

The 10 yr note broke above 3.50% this morning and didn't even make an attempt to re-test it with the stock market trading weaker for most of the day. The dollar got the message; US interest rates about to move higher is having the expected response in the currency markets with the buck improving today. One day isn't a trend but with the breakout in the bond market and now the target for the 10 yr note at 3.75% and mortgages to 5.50%, the worm may be turning for the dollar. The equity markets were hit late this morning after opening and trading better early in the session; expected higher interest rates which will in turn strengthen the dollar and dissuade foreign investors from buying US equities as they have been doing---one of the keys to how far stocks have climbed with no correction of consequence.

There were no economic releases today. The $7B re-opened 5-yr TIPS went off extremely well, seeing 0.769%, well lower than expected, while also hitting the highest bid-to-cover since 2004, at 3.10 while the indirect bidder take was well above average at 47.8%, best since October 2006. The initial 5 yr TIPS saw the $8B go off at 1.278% with a 2.70 cover and an indirect bidder take of 26.6%. The auction was expected to be well received so the strong demand did not offer that much to trade, while being the last TIPS auction for the year, with the next batch of 10-and-20-yrs hitting in mid-to-late January.

Tomorrow Treasury begins in earnest to sell $116B of notes with $44B of 2 yr notes. We expect all three of the auctions will see continued strong demand, especially with US interest rates moving higher since last month's auctions. If anyone of them stubs its toe, the rate markets will not take it well.

Talk of China's growing energy demands spurred expectations of higher oil and dollar levels, while the buck's bounce helped weigh on crude along with lowered supply threats. Crude and gold were both hit today on dollar strength.

At 9:00 tomorrow morning the Case/Shiller Home Price index for August is expected to be -11.90% yr/yr, a little better than -13.30% yr/yr in July. Old data but always gets a good read; in past Case/Shiller reports anytime the decline in yr/yr price levels improved it went well in the stock market. That kind of excess euphoria however, is over the top. On a national level home values are going down, yes a bounce is a step in the right direction but these are baby steps compared to the continuing increases in mortgage delinquencies.

At 10:00 tomorrow, Sept consumer confidence as tracked by the Conference Board, is expected to increase marginally to 53.5 frm 53.1 in August. Like the Case/Shiller any minor increase is market noise and not significant. Consumer confidence is largely a view of how the stock markets are doing; whether invested or not, consumers believe things are improving if stocks are increasing. The logic is sound, but has little to do with how consumers will spend; an increasing stock market doesn't equate to more job security or wage increases.

At 4:00 the 10 yr note and mortgage prices are at their lows of the day; the yield on the 10 yr clear of 3.50% at 3.57%. Our models are now pointing to 3.75% for the note, but likely in a choppy two way trade as it moves higher. That one caveat still holds however, if the equity market were to fold on heavy selling it will act as a support for the rate markets. Lot of data and Treasury auctions left for the week, look for increased volatility after a slow week last week (until last Friday).

PRICES @ 4:00 PM

10 yr note: 100.15 -22/32 3.57% +8 BP

5 yr note: 99.12 -8/32 2.51% +6 BP

2 Yr note: 99.30 -1/32 1.03% +2 BP

30 yr bond: 102.00 -47/32 4.38% 9 BP

Libor Rates: 1 mo 0.243%; 3 mo 0.280%; 6 mo 0.580%; 1 yr 1.244%

30 yr FNMA 4.5 Nov: 100.07 -12/32 (.37 bp) (-6/32 (.18 bp) frm 9:30)

15 yr FNMA 4.0 Nov: 101.01 -9/32 (.28 bp) (-5/32 (.15 bp) frm 9:30)

30 yr GNMA 4.5 Nov: 100.13 -12/32 (.37 bp) (-6/32 (.18 bp) frm 9:30)

15 yr GNMA 4.0 Nov: 101.24 -9/32 (.28 bpo) (-5/32 (.15 bp) frm 9:30)

Dollar/Yen: 92.21 +0.08 yen

Dollar/Euro: $1.4861 -$0.0135 (dollar strong today)

Gold Dec: $1-39.80 -$16.60

Crude Oil Dec: $78.58 -$1.92

Goldman-Sachs

Commodity Index: 508.84 -10.44

DJIA: 9867.96 -104.22 (-213 in last two sessions)

NASDAQ: 2141.85 -12.62

S&P 500: 1066.95 -12.65