San Diego Home Mortgage Blog

Floating today is touchy; while the markets are better the likelihood of more improvement through the day is questionable and depends on how equity markets act. We suggest floating to start but we also caution that the near term is bearish for the bond and mortgage markets. If floating stay close for our rate alerts.

At 8:30 the 10 yr note +9/32, mortgage prices +8/32; at 9:00 the 10 yr +16/32, mortgage prices +11, the DJIA futures -14. At 9:30 the DJIA opened -24, the 10 yr note +18/32 3.32% -6 BP; mortgage prices at 9:30 +10/32 on 30s, +12/32 on FHAs and +7/32 on 15s.

After the heavy selling on Thursday and Friday last week treasuries and mortgages are starting better this morning. As noted in Friday's 4:30 report we expect increased market volatility this week; the reversal and heavy selling last week purged a lot of bullishness as interest rates finally hit their low yields. Not likely the 10 yr note will trade under 3.00% or the 30 yr bond under 4.00%; both levels were somewhat tested last week, the 10 yr hit an intraday low at 3.10% but quickly rejected it to close at 3.18% that day. The trigger last Thursday was the weak demand for the 30 yr bond auction, comments from various Fed officials that the Fed was preparing to drain bank reserves with reverse repos, Australia increasing its base rates, and the exploding federal deficits driven by the mostly wasted bailout money. Mortgage rates fell below 5.00% a week ago, but they too will likely find it difficult to decline more. Regardless of the arguments either side of the rate debate; there is a limit that rates cannot exceed, we believe we have hit those limits as long as there is no major change in sentiment on the economic outlook.

Last week there was very little economic data to chew on; this week we do have more meat on the bone.

Today;

2:00 Sept treasury budget statement (-$31B, August -$111.4B)

Wednesday;

8:30 Sept Retail sales (-2.1%, ex auto sales +0.3%)

Sept export and import prices

10:00 August business inventories (-0.9%)

2:00 FOMC minutes frm the 9/23 meeting

Thursday;

8:30 Weekly jobless claims (+4K to 525K; continuing claims 6.06 mil frm 6.04 mil)

Sept CPI (+0.1%, ex food and energy +0.1%)

NY Empire State manufacturing index (17.5 frm 18.88)

10:00 Oct Philly Fed business index (12.5 frm 14.1)

Friday;

9:15 Sept Industrial production (+0.2%)

Sept Capacity utilization (69.6%, unch frm Aug)

9:55 U. of Michigan consumer sentiment index (74.0 frm 73.5)

The dollar is lower again this morning, sooner or later the US will pay a huge price on its decline. The Obama administration chose to spend the US out of recession, the consequence is the dollar is doomed to continue to fall. The current consequence is a mad scramble for hard assets lead by gold and other precious metals (silver, copper, platinum, and palladium are leading the run). Eventually it will lead to an explosion of inflation; that is the bet being laid now by investors; next up will be interest rates as the US has to pay more for borrowing to fund the spending spree. While on the subject, the CBO has blessed the current health care reform moves currently boiling in Congress saying that the US can insure another 15 mil people while it lowers the budget deficit; really? The plan is to tax the daylights out of health insurers, businesses that offer health care and yes, those that are currently covered in some way. One hell of a way to stimulate the economic recovery.

The technical picture; the 10 yr note broke above its support Friday (3.28%) it cut through its 20 day moving average but held Friday at its 40 day average; this morning the 10 is trading back below its 20 day (3.34%) on the yield chart. We expect the 10 yr will set up a new range for the near term between 3.25% and 3.50%. Mortgage prices hit their May high prices but failed, still however holding to their 20 day moving averages this morning. Mortgages technically are a little better than the bellwether 10 yr note but it still rests with the 10 yr note for the direction of mortgage rates and prices. The Fed is still buying mortgages to complete its $1.25T commitment to support mortgage rates, however it is unlikely that the Fed will up the amount when the plan is completed at the end of Q1 2010.

PRICES @ 10:00 AM

10 yr note: 102.18 +17/32 3.32% -6 BP

5 yr note: 100.14 +10/32 2.28% -7 BP

2 Yr note: 100.04 +3/32 0.92% -5 BP

30 yr bond: 105.26 +40/32 4.16% -7 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: @9:30 100.27 +9/32 (.28 bp) (-3/32 (.09 bp) frm 9:30 Friday)

15 yr FNMA 4.0 Dec: @9:30 101.10 +6/32 (.18 bp) (-2/32 (.06 bp) frm 9:30 Friday)

30 yr GNMA 4.5 Dec: @9:30 101.01 +11/32 (.34 bp) (-3/32 (.09 bp) frm 9:30 Friday)

15 yr GNMA 4.0 Dec: @9:30 101.31 +5/32 (.15 bp) (-4/32 (.12 bp) frm 9:30 Friday)

Dollar/Yen: 89.70 -0.07 yen

Dollar/Euro: $1.4815 +$0.0039 (dollar weaker)

Gold Dec: $1062.30 +$13.70

Crude Oil Nov: $73.67 +$0.40

Goldman-Sachs

Commodity Index: 485.15 +1.44

DJIA: 9826.02 -59.78

NASDAQ: 2131.35 -7.79

S&P 500: 1068.04 -8.15