San Diego Home Mortgage Blog

The Change in Rates overnight was .25% in the wrong direction!!

We suggested locking rate locks last night to capture the gains over the last few days. We want to begin anew this morning by floating; but with the employment report tomorrow unless mortgage prices improve substantially we will likely lock overnight into the report----too risky on a number that shocks more often than not. Keep tuned for RATE ALERTS if markets swing lower.

Treasuries and mortgages opened weaker this morning as we expected in the 4:30 report yesterday; nothing special, rate markets have made a strong move in the past week as the equity markets finally capitulate a little. Early this morning the DJIA index was up 40 points after over a 200 point fall in the past two days. At 8:30 weekly jobless claims were down 4K to 570K; last week's claims were revised from 570K to 574K. Continuing claims this week were up, to 6.235 mil frm a revised 6.142 mil last week. No real noticeable reaction to the report. At 9:00 this morning the 10 yr note -9/32 to 3.34% +3 BP, mortgage prices -6/32, the DJIA index +39. At 9:30 the DJIA opened +30, the 10 yr note -8/32 and mortgage prices -6/32. (see below for 10:10 levels)

At 10:00 the ISM services sector hit at 48.4 frm 46.4 in July; generally on target. New orders were 49.9 frm 48.1, prices pd at 63.1 frm 41.3 and the employment component at 43.5 frm 41.5. A little better than estimates but not much. The initial reaction to the report cut bond market losses and pushed equity indexes back off their best early levels; under the surface traders were hoping for the overall index to come in over 50, the pivot for expansion or contraction. On Tuesday the ISM manufacturing report showed a sizeable improvement yet the equity markets were hit hard; buy the rumor sell the fact, a traders mantra. Almost 100% of traders and investors are sitting and expecting a correction. For the first time in months the equity markets haven't improved on stronger economic readings.

The rest of the session today will be adjusting portfolios and trading positions ahead of the August employment report. The ADP estimate yesterday came in a lot higher than forecasts in terms of job loss forecasts; -298K was 98K more than earlier estimates for the BLS rep[ort tomorrow, but ADP does not take government jobs into their forecasts. Always a wild report, likely it will be the same tomorrow morning.

Rate markets will contend with more supply next week; later this morning Treasury will announce the details for next week's 3 yr, 10 yr and 30 yr auctions. The run to 3.26% intraday yesterday on the 10 yr completes our target for the move lower; not forecasting the end of the decline in rates but at the current levels it may require some work to crack 3.28% on a close; capping the recent decline in mortgage rates for the moment. Still all about the stock market expectations for an economic recovery however.

Technically the bond and mortgage markets are bullish; the 10 yr note and mortgages trading well and holding positive outlooks based on their respective moving averages, our proprietary trading software and all chart points. That said, we expect continued market volatility for the remainder of this month as markets continue to chew on a recovery and its sustainable magnitude. No job increases, more job losses albeit less than six month ago, but nothing on the horizon on job growth. Lots of optimism out there from The Street and CNBC pundits; what needs to be kept in mind as you listen to the increasing belief the economy is on the road to recovery is that what you hear is from those that make their living by selling something, in this case stocks and investments. Any analyst that works for a big investment firm or bank that steps out of line from the bullish outlook better be polishing up their resumes. Got to line up with other lemmings; a self fulfilling prophesy or a disaster waiting to happen for investors? Still a big gamble.

PRICES @ 10:10 AM

10 yr note: 102.16 -5/32 3.33% +2 BP

5 yr note: 100.12 -3/32 2.29% +2 BP

2 Yr note: 100.05 unch 0.91% unch

30 yr bond: 105.31 -15/32 4.15% +2 BP

Libor Rates: 1 mo 0.253%; 3 mo 0.321%; 6 mo 0.719%; 1 yr 1.290%

30 yr FNMA 4.5 Oct: 100.13 -4/32 (.12 bp) (unch frm 10:00 yesterday)

15 yr FNMA 4.0 Oct: 100.26 -3/32 (.09 bp) (unch frm 10:00 yesterday)

30 yr GNMA 4.5 Oct: 100.14 -9/32 (.28 bp) (-5/32 (.15 bp) frm 10:00 yesterday)

15 yr GNMA 4.0 Oct: 101.15 -1/32 (.03 bp) (+5/32 (.15 bp) frm 10:00 yesterday)

Dollar/Yen: 92.57 +0.31 yen

Dollar/Euro: $1.5251 -$0.0013

Gold Dec: $985.00 +$6.50

Crude Oil Oct: $68.08 +$0.03

Goldman-Sachs

Commodity Index: 442.19 -0.25

DJIA: 9262.68 -17.99

NASDAQ: 1962.10 -4.94

S&P 500: 993.81 -0.94