San Diego Home Mortgage Blog

Float to start the day; the stock market is soft, treasuries and mortgages are technically good, holding at key MAs and our models remain bullish. Although our outlook for rates is positive presently, trading the markets by floating and not locking requires a daily decision.

At 8:30 this morning the 10 yr note +5/32, mortgage prices +3/32. Weekly jobless claims hit down 26K

against forecasts of a decline of 10K to 550K, the lowest weekly claims since early July; last week's claims were revised slightly higher to 576K from 570K originally reported. Continuing claims also fell to 6.088 mil frm 6.247 mil. The decline in continuing claims is likely driven by unemployment benefits running out for many, not job creation. Also at 8:30 July trade deficit was larger than forecasts, -$32B against -$27B expected. Treasuries, mortgages and the equity market were all trading better at 9:00; the 10 yr +9/32 at 3.44% -4 BP and mortgage prices +5/32, the DJIA +8. At 9:30 the stock market opened weaker, the DJIA -20, the 10 yr at 9:30 +14/32 3.42% -6 BP and mortgages +10/32. (see below for 10:00 levels)

At 1:00 this afternoon Treasury will sell $12B of 30 yr bonds completing the three auctions totaling $70B. Next round of Treasury funding the deficit in two weeks with 2 yr, 5 yr and 7 yr notes. Investors are continuing to step up and take down about $170B a month in 2s through 30s.

Technically, yesterday the 10 yr note yield hit its near term support at 3.50% area, it held and this morning the rate markets are trading well. Last night's speech by the Pres hasn't had any noticeable impact on markets; thought his speech was good and it did inject some new enthusiasm into the health care debate but likely didn't sway many. After sitting on the sidelines for months watching Congress work and fail to gain ground, the President has now taken the mantle to push it forward.

We noted yesterday that investors and banks are stepping into buying mortgages. Banks are lending to investors to buy MBSs particularly Ginnies and also corporate bonds. This morning the WSJ is reporting banks are in it big, while on one hand foreclosing on non-performing mortgages, on the other buying heavily in the Ginnie Mae market; exchanging junk with mortgages now guaranteed by the government.

No end to foreclosures yet; a total of 358,471 properties received a default or auction notice or were seized last month (Aug), according to data provider RealtyTrac Inc. That’s up 18% from a year earlier, but down 0.5% from July. One of The Street's stars, Meredith Whitney, said this morning on CNBC she expects the possibility that home prices could fall another 25% in many areas before a bottom is in place. That is a scary thought, and one that equity market investors betting heavily on an economic rebound, will likely toss out with the baby. Is there anything out there that will shake the excessively bullish outlook for the economy and the relentless drive into equity investments? Based on how investors have chosen to ignore any questionable economic outlooks or data recently it appears the bull is still alive and kicking. About 4.0% of U.S. homes were in foreclosure in the second quarter, the Mortgage Bankers Association said last month. That’s the most in three decades of data, and loans overdue by at least 90 days, the point at which foreclosure proceedings typically begin, rose to 7.97%, the highest on record.

Treasuries and mortgages continue to look good; interest rates are declining even as the equity markets refuse to cave in, we suggest investors are moving into treasuries as a hedge against what is likely to be a big decline in equities at some point. The excessive bullishness toward the stock market and economy is no longer climbing that wall of worry; most every analyst and financial adviser is convinced any decline in the bullish outlook will be another huge buying opportunity, many have missed the move and will likely step up on any dips----at least that is the talk.

PRICES @ 10:10 AM

10 yr note: 101.21 +13/32 3.42% -6 BP

5 yr note: 100.07 +6/32 2.32% -5 BP

2 Yr note: 100.06 +1/32 0.90% -1 BP

30 yr bond: 103.21 +27/32 4.28% -4 BP

Libor Rates: 1 mo 0.243%; 3 mo 0.299%; 6 mo 0.682%; 1 yr 1.261%

30 yr FNMA 4.5 Oct: 100.20 +10/32 (.31 bp) (+11/32 (.34 bp) frm 10:00 yesterday)

15 yr FNMA 4.0 Oct: 100.30 +6/32 (.18 bp) (+8/32 (.25 bp) frm 10:00 yesterday)

30 yr GNMA 4.5 Oct: 100.24 +10/32 (.31 bp) (+13/32 (.40 bp) frm 10:00 yesterday)

15 yr GNMA 4.0 Oct: 101.20 +7/32 (.21 bp) (+7/32 (.21 bp) frm 10:00 yesterday)

Dollar/Yen: 91.90 -0.08 yen

Dollar/Euro: $1.4524 -$0.0031 (dollar better)

Gold Dec: $992.60 -$4.50

Crude Oil Oct: $71.70 +$0.39

Goldman-Sachs

Commodity Index: 456.15 -1.01

DJIA: 9549.34 +2.12

NASDAQ: 2066.42 +6.03

S&P 500: 1032.87 -0.50