San Diego Home Mortgage Blog

Some re-pricing today but since that prices of mortgages have come off their best levels. Tomorrow is roll over day when we begin tracking the Nov coupons; price drops of 12/32 between Oct and Nov. Given the roll and that prices are now not much better than at 9:30 this morning we suggest holding only a very small position of locked loans overnight. Still very bullish on the rate markets but it is likely to be choppy.

A very good day for the rate markets, even with the equity markets doing better.

The drive to lower interest rates continues after testing technical support yesterday on the 10 yr. Still believe the moves to treasuries is in anticipation of the possibility the stock market will turn in what we expect to be a sizeable retracement, however so far there is no real evidence the stock market is about to flip. What we have now is a market that has shown no real gains in the key indexes for weeks. Hard to not be looking for a big turn in the stock market given the overwhelming bullishness; no market can keep this kind of bullish bias for long, but the rationale from the markets is that there are investors lining up to buy on any dip as the ignominious bet continues that the economy will start to grow. We agree with that but where we get off the boat is that we don't expect an economic recovery strong enough to justify the present stock market levels----at least for another year or so. We are as stubborn on our outlook as the stock market is on its outlook.

Interest rates are likely to remain low as long as demand for credit is flat and until unemployment levels begin to improve. Investors taking out insurance while simultaneously parking funds in the safety of the US government. While we can not argue the economic outlook does look brighter at the moment; to keep it that way the government will have to continue to pump money into it. Take the first time homebuyer tax credit, if not extended the likelihood of slowing home sales becomes real. Then we have commercial mortgages now beginning to unravel, more government money coming to avoid another market mess in that sector; and it goes on-----a house built on cards?

The 30 yr bond auction today was the best of the week and a big surprise, normally the 30 yr has the least demand along the curve. The yield at 4.238% with a cover of 2.92 and indirect bidders took 46.5%. The previous 30-yr saw 4.541% with a 2.54 bid-to-cover ratio and an indirect bidder participation rate of 48.1% against an average 2.31 and 34.5% over the past 10 auctions going back to 2008. The strong demand sent interest rates down as investors remain very skeptical over those green things I said we would never mention again (signs of economic growth).

Within two hours of the auction the 30 yr bond yield declined 7 basis points (+38/32) while the 10 yr note, the more significant, dropped to 3.33% just 5 basis points away from the technical resistance at 3.28% that was hit a week ago yesterday. Mortgage markets hitched up and went for the ride with the 10 yr but today slightly lagging after out-performing the 10 yr the past two sessions.

Tomorrow is the end of this short week that didn't offer up much economic data, Tomorrow the U. of Michigan consumer sentiment index is expected to increase to 67.8 frm 65.7, if stronger markets will put the lipstick on it, if lower it will be discounted as a survey that includes only 500 respondents. July wholesale inventories are expected to continue to fall, down 1.0% is expected. Tomorrow afternoon, not a market mover but interesting nonetheless, the August Treasury budget, expected to be a deficit of $162B.

Late in the session some slight selling in the mortgage market pulled prices down off their best levels seen about 1:30 when 30 yr mtgs traded +17/32 on the day, but at 4:00 were still holding gains.

PRICES @ 4:00 PM

10 yr note: 102.08 +32/32 3.35% -13 BP

5 yr note: 100.13 +11/32 2.29% -8 BP

2 Yr note: 100.06 +2/32 0.89% -2 BP

30 yr bond: 105.04 +73/32 4.20% -12 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: 100.24 +14/32 (.43 bp) (+4/32 (.12 bp) frm 10:00)

15 yr FNMA 4.0 Oct: 101.04 +12/32 (.37 bp) (+6/32 (.18 bp) frm 10:00)

30 yr GNMA 4.5 Oct: 100.30 +15/32 (.46 bp) (+5/32 (.15 bp) frm 10:00)

15 yr GNMA 4.0 Oct: 101.24 +11/32 (.34 bp) (+4/32 (.12 bp) frm 10:00)

Dollar/Yen: 91.67 -0.28 yen

Dollar/Euro: $1.4585 +$0.0025 (dollar weaker)

Gold Dec: $997.00 -$0.10

Crude Oil Oct: $72.24 +$0.93

Goldman-Sachs

Commodity Index: 461.13 +3.97

DJIA: 9627.48 +80.26

NASDAQ: 2084.02 +23.63

S&P 500: 1044.14 +10.77