San Diego Home Mortgage Blog

Suggest continuing to float overnight. Mortgages are 9/32 (.28 bp) better now than at 9:30 this morning.

Once again, a very strong bid for the 5 yr auction. It went exceptionally well, the rate 2.175% with the bid to cover ratio at 2.81 and indirect bidders gobbled up 60.9% of it. Treasuries and mortgages were supported on the results but somewhat subdued with the odd ball 7 yr note auction tomorrow that will certainly not go as well. In Oct the 7 yr auction required a higher yield than traders were thinking and we suspect that will be the case again tomorrow. The previous, smaller, $41B outing had a slightly higher 2.388% yield with a big 2.63 bid-to-cover and an indirect bidder take of 54.8%. The past 9 auctions of '09 which have seen an average 2.26 cover and 44.26% indirect bidder rate.

The minutes from the 11/4 FOMC meeting were released at 2:00. As we know the Fed's minutes reiterated the Fed isn't anywhere close to increasing interest rates. Expected pick-up in growth and little concern about the buck's orderly decline. Added detail on the "quantitative easing" measures was good news. The passage echoed what SL's Bullard mentioned the other day, that the slowing of the buying of mortgage-related and agency debt, perhaps giving the policy-posse some wiggle room to potentially extend the timeframe of purchases out past March. The FOMC saw slowing jobs deterioration and improved growth, while they worried about the potential inflation impact as well as risk renewal in the face of low rates. Members "continue to state their expectation that economic conditions were likely to warrant exceptionally low rates for an extended period...Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations...the likelihood of such effects as relatively low, they would remain alert to these risks. All agreed that the path of short-term rates going forward would be dependent on the evolution of the economic outlook."

“Participants noted that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand in light of the recovery in financial market conditions this year,” the minutes said. “Any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching.”

Fed governors and regional bank presidents predicted the jobless rate will range from 9.3% to 9.7% in next year’s fourth quarter, down from their June projection of 9.5% to 9.8%.

Tomorrow will be the last day in what we otherwise call a four day weekend; although markets will be open on Friday morning. No one will be home Friday, the only ones standing around will be those watching the house with instructions to do nothing. That sais, before that we have a lot of data to chew on tomorrow morning and the $32B 7 yr note auction.

8:30 will test our ability to think about a lot of data; Oct personal income and spending, Oct durable goods orders, weekly jobless claims. At 9:55 the U. of Michigan consumer sentiment index. At 10:00 Oct new home sales. By 1:30 tomorrow after the 7 yr note do not stand in the doorway or you will be trampled by those leaving for the long weekend.

As is usually the case approaching Black Friday analysts appear equally divided on what consumers will spend. With so many early sales Black Friday may be more like Blue Friday with many shoppers already done. Next Monday that will be all we hear about; how consumers will spend into retail's most important four weeks of the year.

The boys and girls in Washington may be setting up taxpayers to blame for the failure in Afghanistan; sneaky but a novel idea to shift blame for the failure to deal successfully with the Taliban and terrorists. The Administration and key leaders in Congress have a plan to tax Americans for the cost of continuing the war. What is being talked about is increasing income taxes on all Americans; but what is novel is that the reason for the tax increase is that Americans should pay for the war. Sneaky; tax increases are necessary so to get them use the Afghanistan war costs to justify it and dodging the real problem of too much spending. If successful Obama could get a tax increase, take the heat off himself on the war and most likely have the resentment for the war be so strong he doesn't have to face the music that he failed to complete the task. Oh yes; the proposed tax increase would be passed but put on hold until the economy has improved. A slight of hand that is almost praiseworthy for its surreptitiousness.

The mortgage markets continue to improve, a strong day today with the FNMA 4.5 coupon breaking its technical resistance, the highs set in early October before backing up. The 10 yr note however has not been able to break its near term resistance at 3.30%, tested it today but couldn't get it done.