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Have no interest in floating today. Keep locked through the day. Potential volatility; keep close to our Instant Re-pricing Alerts that accurately caught the re-pricing ahead of lenders yesterday.

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Treasuries and mortgages traded fractionally weaker in very early activity this morning after a very serious sell-off yesterday. As we noted in yesterday's morning commentary, the mortgage market had become excessively overbought technically. The selling yesterday was accentuated by loan originators heavily long by floating moved rapidly to lock floating loans. After three weeks where mortgage prices closed lower on the day only three times since the beginning of November, it was an event destined to occur, and yesterday we had it.

At 8:00 AM this morning the 10 yr note traded -2/32, mortgages -4/32 (.12 bp); at 8:15 the ADP employment report hit with more job losses than what had been expected. ADP said private jobs were down 169K with forecasts at -150K, the increased job declines over forecasts put a slight bid in treasuries with the 10 yr note at 8:45 +2/32 and mortgage prices +1/32 (.03 bp) frm the close yesterday. At 9:00 mtg prices -1/32 (.04 bp) with the 10 yr note +2/32 (.06 bp); the DJIA at 9:00 -10. At 9:30 the DJIA opened -11, the 10 yr unchanged and mortgages -2/32 (.06 bp).

The ADP report is sending economists back to the drawing board to assess the possibility the BLS official employment report on Friday may show more lost jobs than the 100K that had become the consensus (the range between -160K to -75K). It is the 22nd month of job declines on the ADP, but the 8th month in a row the losses were less than the previous month. After overestimating payroll losses by 103K on average in the five months to September, ADP’s initial estimate for October was in line with the government’s payroll figures; Friday will tell us whether ADP is once again tracking well against the BLS data. The data clearly indicates there will be continued losses and higher unemployment rate, lasting longer than the optimistic equity market is anticipating. BLS estimate is for the unemployment rate to be unchanged at 10.2%.

At 7:00 this morning the weekly MBA mortgage applications showed a slight increase in all applications. Up 4.1% in the holiday shortened Nov. 27 week. The refinance index rose 1.7%. Low rates are a big plus for mortgage demand with 30-year loans averaging 4.79%, down 3 basis points for the lowest rate since May.

Nothing left now until this afternoon when we get Nov auto and truck sales, expected to be a little better than in October. At 2:00 the Fed will release its Beige Book on the status of the economy.

Tomorrow Bernanke will go the Senate for his confirmation hearing for his re-appointment. He will be confirmed, no doubt; but it will be a venting process as many in Congress want to lay blame on the Fed for its handling of the bailouts of banks and its roll in the economic collapse by not monitoring banks more closely. Some of the blame is deserved, but it wasn't all the Bernanke Fed, the Greenspan Fed has a lot of responsibility for this recession. Greenspan saw the irresponsible mortgage lending happening, he commented on it more than a few times calling it a bubble then sat there with unreasonably low interest rates and watched it unfold. The Fed does have egg on its collective face but Bernanke is the best we have now. His re-appointment will not likely end Congresses ire, whether over-baked or not.

Also tomorrow Pres Obama is gathering corporate leaders for a jobs summit in Washington. Obama administration is at a loss as to what to do, if anything. Job losses continue with little reason to expect they will stop anytime in the next six months. More job stimulus? That will add heavily to the already exploding budget deficits. Obama made a big mistake by under-estimating the magnitude of the economic collapse, instead putting all efforts to pass health care. Should have put the economy first and health care for another day. That said, it is unlikely there was much that could be done to stop the inevitable economic slide.

After the beatdown in prices yesterday at the long end of the curve and in the mortgage markets, today may be quiet as traders assess the action and with employment on Friday and the Obama jobs summit tomorrow. And lest we forget, Treasury will announce the amounts for next week's bi-weekly auctions (3s, 10s and 30s). The employment report on Friday, the jobs summit tomorrow and supply next week; and after heavy selling yesterday, markets are likely to be flat today.

Continue to float today. Keep attention on the Instant re-pricing indicator at MBS Tracker.

Friday morning the US stock and bond markets were hit with selling of equities and safe haven buying of US treasuries on the news Thursday that Dubai was asking for debt relief on its debt for the building of Dubai World and other what now will be considered outlandish at best. Dubai built thinks that were beautiful and at the same time had little rational other than the belief that there would be no global recession. The lid blew last week when Dubai said it couldn't pay its debt. The UAE since has come out saying it will lend money to the Dubai banks involved and that has settled things a little this morning. What UAE has not said however, is whether that central bank will stand with Dubai World, the island making venture that has ruin out of buyers. Estimates of the combined debt being default are ranging from $80B to $120B but no one really has a handle yet. Dubai borrowed $80B in a four-year construction boom that transformed the sheikhdom into a regional tourism and financial hub. It suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak, according to Deutsche Bank AG.

Mohammad El Arian of PIMCO on CNBC this morning provided a chilling reminder that the Dubai problem is not an isolated incident; that over-building around the world and bad lending has yet to be dealt with in this recession. US credit losses are now set at $2.1T to $2.5T according to Goldman-Sachs. Al Arian made it clear that in his view government bailouts will not be enough to turn global unemployment around; what government's must do is address structural economic problems, job creation should be top priority or this recession may just be starting.

At 9:30 the DJIA opened -15 after falling 154 on Friday. The 10 yr note at 9:30 -6/32 after +16/32 on Friday; mortgage prices at 9:30 -1/32 after jumping 13/32 on Friday.

The first of a number of key economic releases this week hit at 9:45 with the Nov Chicago purchasing mgrs index; a measure of manufacturing in the mid=west region. The overall index was expected to be at 53.7 frm 54.2 in Oct; as reported the index increased to 56.1; new orders were up to 62.8 frm 61.4, prices pd at 52.6 frm 48.6 and employment component to 41.9 frm 38.3. Any index read over 50 is expansion; a better than expected report overall took the stock indexes to positive after being slightly weaker in early trading.

This Week's Economic Calendar:

Tuesday;

10:00 ISM manufacturing index (54.8 frm 55.7)

Oct construction spending (-0.4%)

Oct pending home sales (-0.3%)

2:00 Nov auto and truck sales

Wednesday;

7:00 Weekly MBA mortgage applications

8:15 ADP private jobs estimate for Nov (-155K)

2:00 Fed Beige Book

Thursday;

8:30 weekly jobless claims (+13K to 483K; continued claims +12K)

Q3 productivity revision (+8.5% frm +9.5%)

10:00 Nov ISM services sector index (51.4 frm 50.6)

Friday;

8:30 Nov employment report (-120K jobs, the unemployment rate unch at 10.2%)

10:00 Oct factory orders (+0.2%)

Thursday President Obama will begin to address the job markets with a job summit announcement. The employment report on Friday, while forecasts are not too bad, will be critical as markets have begun to believe job losses will continue to slow. Probably will; if we kept up the pace of a year ago there would be no one working in a year or so. Markets have become excessively bullish in the past few months, many bullish traders increasingly more nervous that a major correction may be in store yet so far investors continue to buy on dips with analysts saying any dip is a buying opportunity. Serious bets have been made that the global economy will continue to rebound and the US economy, while slower to come around, is going to follow. Not many believe there is any reason to worry about another economic decline.

US interest rates are likely to remain low for much longer than most had expected a few months ago. No inflation fears; if there are any fears in that regard they are increasing that deflation will be the concern as we move into 2010. PIMCO's Al Arian is convinced deflation will trump inflation through 2010. Good news in a sense, keeping mortgage rates manageable; not so good for retailers, home prices, or business profits.

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.

We will start by floating; at the end of the day unless there is an improvement we will lock overnight.

Started a little better early this morning, at 8:30 weekly jobless claims added just a smidge of support. Claims, expected to up 2K were unchanged but last week's claims were revised slightly higher, from 502K to 505K. Continuing claims declined again to 5.61 mil frm an upward revised 5.65 mil (frm 5.63 mil). The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments jumped by about 119,000 to 4.16 million in the week ended Oct. 31. No job creation; no concern over it though; markets are fixated on a jobless recovery and that employment is a lagging indicator. A rather naive view in our opinion in this unprecedented recession.

At 9:00 this morning the 10 yr note +8/32 at 3.34% -3 BP, mortgage prices +4/32 and the DJIA futures -58; want to guess why the stock indexes are weaker? The dollar is stronger this morning against the euro currency---Pavlov's dog. On Monday Obama made his first comment that the dollar should be stronger, since then the dollar seems to have stabilized and is doing its thing weakening the equity markets. At 9:30 the DJIA opened -57, 10 yr note +5/32 and mortgage prices at 9:30 +3/32.

At 10:00, a few minutes ago, the Nov Philadelphia Fed business index, expected to have increased from a read of 11.5 in Oct to 12.0, the overall index jumped to 16.7. New orders component at 14.8 frm 6.2, prices pd component at 14.9 frm 21.3 and employment component at -0.5% frm -6.2%. A better report but little initial reaction to it.

At 10:00 the MBA reported that 9.6% of all mortgages are delinquent; a huge number.

Also at 10:00 Oct leading economic indicators, estimates at +0.4%, hit at +0.3%, the seventh month in a row LEI has increased.

Tim Geithner is on the Hill today; more testimony on financial reform.

At 11:00 Treasury will announce the amounts for next week's auctions. Last month's 2, 5 and 7 yr notes totaled $116B, likely will be in that range again. Supply used to send tremors through the rate markets on fears of soft demand; recently however demand has been very strong and likely that will be the case next week. If not, look out as markets have little concern that bidding for US debt will slow.

Congratulations to Frank and Brian on delivering 120K petitions on HVCC to Atty General Cuomo In NY. The boys of summer have done a yeomen’s job working on driving forward the concerns of the mortgage lending industry. They led the way for all lenders.

PRICES @ 10:10 AM

10 yr note: 100.10 +8/32 3.35% -2 BP

5 yr note: 101.01 +6/32 2.15% -4 BP

2 Yr note: 100.08 +2/32 0.71% -4 BP

30 yr bond: 101.27 +20/32 4.26% -4 BP

Libor Rates: 1 mo 0.236%; 3 mo 0.266%; 6 mo 0.492%; 1 yr 1.033%

30 yr FNMA 4.5 Dec: @9:30 101.25 +3/32 (.09 bp) (+4/32 (.12 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Dec: @9:30 102.24 +3/32 (.09 bp) (+3/32 (.09 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Dec: @9:30 101.31 +4/32 (.12 bp) (+5/32 (.15 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Dec: @9:30 102.29 +4/32 (.12 bp) (+4/32 (.12 bp) frm 9:30 yesterday)

Dollar/Yen: 88.72 -0.60 yen

Dollar/Euro: $1.4857 -$0.0103 (dollar stronger)

Gold Dec: $1133.70 -$7.50

Crude Oil Dec: $78.01 -$1.57

Goldman-Sachs

Commodity Index: 516.62 -3.57

DJIA: 10292.24 -137.27

NASDAQ: 2152.27 -40.87

S&P 500: 1092.23 -17.57

Treasuries and mortgages opened weak this morning but managed to claw back through the day to generally unchanged. All in all it has been quiet through most of the day after the initial volatility early. The dollar got a boost today after Ben Bernanke said yesterday he favors a strong dollar; but the real deal on the better dollar today is the euro currency still unable to hold over $1.50 per one euro, every time the dollar weakens to that area currency markets bounce back as short timers cover heavy short dollar positions. Adding to what may be a big correction coming in the otherwise dollar bearishness, talk has become so commonplace on the sinking dollar that a bounce is more likely. Goes to the worn adage; when everyone gets on one side of the boat, it tips over; and now everyone sucking air is bearish the buck. If the dollar were to start a prolonged retracement it won't be good for stocks and bond markets.

Try as hard as he can to lessen the concerns over inflation, Bernanke may not be winning the war---or maybe he has won. The recent increase in gold has foundation that it is a hedge against inflation; but with no pricing pressures, a very weak economy and not too favorable outlook for real improvement, the only inflationary potential is the continuing weak dollar. According to WSJ the battle between bonds and gold over inflation will have to be won by one side or the other, with the bonds relative complacency over potential inflation juxtaposed against gold's shiny, red-hot record setting levels with heated concern over potentially popping prices. The penchant to buy gold is as strong as I have seen in 40 years, outstripping the gold drive in the early 80s. Then gold hit $800+ on panic buying. Gold appears to be on a speculative binge that economic disaster is just around the corner, and inflation will increase rapidly.

Where the hell is the economy now, and where will it head next year? Establishment economists and equity markets are all but giddy over the declining job losses, giddy over the Q3 GDP jumping to +3.5% and gooey over the belief the economy has bottomed. Job losses are still growing, less than in the past but still increasing and no reason to expect a bottom in jobs is anywhere in sight. The US has lost a total of 300K jobs since 1999 in the private sector, in a period where the economy exploded. Now on its knees, why should anyone believe the job market will return to 5.0% unemployment (where it was before the collapse). Unemployment will continue over 10% for at least the next six or more years, topping out in 2011 at over 11.5%. Not going to hear that from the establishment. The number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey (the unemployment rate), not the 190,000 you read about in the mainstream media. Unemployment is sadly continuing to rise by significant amounts. The establishment is dead set on ignoring the unemployment rate, focusing on non-farm job loss data developed by surveying large and intermediate size companies and leaving small businesses aside; betting heavily on a jobless recovery.

Q3 GDP will likely be revised from +3.5% to +2.5% when the preliminary Q3 GDP hits on Nov 24th; according to what we are seeing, states are taking as much as 40% of the government stimulus package to shore up their budgets---no shovel ready stimulus. All in, the restraint in the state and local government sector is estimated to drain a full percentage point from GDP growth in 2010 and more than fully offset the simulative efforts from Washington. The U.S. economy is more likely to post growth of little more than 2% next year, rather than the 5% currently being discounted by the equity market.

Tomorrow Oct housing starts and permits( +1.7% and +1.2% respectively); and Oct CPI (+0.2% overall and +0.1% for the core rate).

Equities and rate markets marked time all day after a choppy volatile trade early this morning. Mortgage prices were strong yesterday until the Fed's Fisher threw cold water on the rally, saying he expects the spread between mortgages and treasuries to widen in the coming year. Technically the mortgage market is testing key longer term resistance at 102.01 for the Dec 4.5 FNMA coupon. The 10 yr note yield at 3.32% is just 5 basis points from it key and very strong resistance at 3.28%. Heavy lifting will be required to break those levels; likely a big sell-off in equities and given the current strength and optimism on equities not a likely scenario.

PRICES @ 4:00 PM

10 yr note: 100.13 +2/32 3.33% unch

5 yr note: 100.30 +2/32 2.17% -1 BP

2 Yr note: 100.14 unch 0.76% unch

30 yr bond: 102.01 +19/32 4.25% -3 BP

Libor Rates: 1 mo 0.236%; 3 mo 0.270%; 6 mo 0.506%; 1 yr 1.059%

30 yr FNMA 4.5 Dec: 101.26 -2/32 (-1/32 (0.03 bp) frm 9:30)

15 yr FNMA 4.0 Dec: 102.05 -3/32 (.09 bp) (-1/32 (.03 bp) frm 9:30)

30 yr GNMA 4.5 Dec: 101.31 -3/32 (.09 bp) (-2/32 (.06 bp) frm 9:30)

15 yr GNMA 4.0 Dec: 102.28 -3/32 (.09 bp) (-1/32 (.03 bp) frm 9:30)

Dollar/Yen: 89.28 +0.20 yen

Dollar/Euro: $1.4868 -$0.0101 (dollar stronger)

Gold Dec: $1141.70 +$2.50

Crude Oil Dec: $79.29 +$0.39

Goldman-Sachs

Commodity Index: 519.58 +1.71

DJIA: 10437.42 +30.46

NASDAQ: 2203.78 +5.93

S&P 500: 1110.32 +1.02

Looks like a choppy day ahead; we will continue to float rate locks to start but our finger is on the trigger based on the technicals but mortgages hit strong resistance yesterday.

Treasuries and mortgages opened weaker this morning after a strong rally yesterday for treasuries, taking the 10 yr note rate to its lowest in two months. At 8:00 the 10 yr -7/32, DJIA -16. At 8:30 the 10 yr -12/32 3.38% +5 BP, mortgage prices -8/32, DJIA -6. At 9:00 10 yr -12/32 3.38% +5 BP, mortgage prices -4/32 and the DJIA -13. At 9:30 the DJIA opened -26, 10 yr note -8/32 and mortgages at 9:30 -2/32.

Oct PPI out at 8:30, a good report for the inflation outlook. The overall PPI increased 0.3%, estimates were for +0.5%; the core excluding food and energy -0.6% against estimates of +0.1%. Yr/yr overall PPI +1.9%, the core yr/yr +0.7%; both lower than ion Sept. On the knee jerk the 10 yr recovered fro a moment then made new lows (price); mortgages tried to catch a bid but they too were printing new lows in the very early activity.

At 9:15 Oct industrial production and Factory usage (cap utilization); estimates were for +0.4% on production and 70.8% on factory usage. Production was up 0.1% while cap utilization at 70.7% about in line with estimates; cap utilization is the second highest this year, January being the best. Full capacity is generally considered at 80.0%.

Looking back to yesterday; mortgage markets were rock solid most of the day with double digit price gains, a few lenders re-priced about 2:00 reflecting the improvement from morning prices. Looked very strong until Dallas Fed Pres Fisher said he expected mortgage rates to widen over treasuries in the period ahead. That did it; heavy selling exploded in mortgages and all the gains were erased within 30 minutes. Later in the afternoon mortgages made another attempt to regain footing but going into the end of the day (5:00) mortgages once again were hit by selling leaving mortgage prices only 2/32 better than at 9:30 yesterday morning after being up 10/32 from morning pricing levels.

Fed officials haven't helped the bond market this morning. Three Fed officials including Bernanke repeatedly said there is no bubble building in the equity markets. Janet Yellen (SF), Bernanke and St Louis Fed Pres Poole were in unison sounding like stock market bulls and it hasn't sat well in the bond and mortgage markets. Always just slightly under the surface, concerns economic growth will force the Fed's hand even though Bernanke continues to insist US rates will remain low for a long time. Bernanke said “significant economic challenges remain,” with lending constrained and the jobless rate above 10 percent. Speaking in New York yesterday, he said U.S. asset prices aren’t out of line with underlying values, and central bank policy will ensure that the “dollar is strong.” “Jobs are likely to remain scarce for some time, keeping households cautious about spending,” he said. While payrolls will increase as the economy recovers, unemployment “likely will decline only slowly if economic growth remains moderate, as I expect.”

Another Fed official at 10:00; Jeffery Lacker, Richmond Fed Pres. Yesterday Fedsters stabbed the bond and mortgage markets in the heart with their comments. Lacker usually has a bomb or two to toss.

The economy has lost 15 million jobs so far; 876K jobs have been lost since July. Big numbers, the unemployment rate increased 0.4% from Sept to Oct to 10.2%. Banks still are reluctant to lend and remain vulnerable to further pressures. Yesterday Meredith Whitney, one of the premier bank analysts, said she thinks bank stocks are over-valued, causing bank stocks to slip on her comments. She added her name and reputation to the view of a double dip recession ahead; not looking for a re-test of the lows in the stock indexes but still a W on the economic recovery. Continued uncertainty, with the Fed cheer leading while many very reputable analysts are sounding bearish. The result for the bond market is an increase in volatility; rates at these low levels require continued verbal support, any comments to the contrary will set up selling keeping long term rates confined to tight ranges. In our view, unless consumers begin to spend the economic recovery will be slow and likely drag on through next year; bullish outlooks continue to ignore the fact that consumers account for 70% of GDP growth and concentrate on the idea the economy can recover as a jobless recovery.

The dollar better today against the euro and yen. Not really hindering equities so far.

Float rate locks over night, nice rally since morning pricing levels.

The $16B 30 yr auction hit at 4.469% with a 2.26 cover and an indirect bidder take of 44%. That was not pretty for the final refunding leg to go with the results showing sketchy demand at higher yields. The market was looking for a 4.44% yield in the WI traded this morning, but even the "natural" buyers, funds and the like, were demanding additional juice for the long duration. The previous, re-opened October 30 yr was sloppy also; $12B seeing 4.009% with a 2.37 and an indirect take of 34.5%. The September auction went off just fine. Bid-to-cover has averaged 2.43 over the 8 auctions in 2009 with an average 42.7% indirect take in that time.

The initial knee jerk was just that, a jerk led response sending the 10 yr note yield up to 3.53% from 3.45%, down 20/32, mortgage in their razor thin market dropped 10/32 in price. The whole reaction lasted fifteen minutes before the long end and mortgages found support. Through the rest of the day the 10 yr and mortgages managed improvement with most of it in the mortgage area.

Nothing these days has generated any real movement in the bond and mortgage markets unless one looks to day-to-day chop; other than that the 10 yr note and mortgages have essentially flat-lined for the past 10 weeks. Can't take the long end of the curve lower because investors simply won't buy at lower rates with concern of inflation and economic growth driving most thinking. Concerns that Pres Obama will crank up another stimulus, printing money and wasting it but keeping interest rates from declining. As for rate increases, that is the path we will see as we move into 2010; the only caveat is the well-worn one; a change of view on the economic outlook. As long as investors continue to bet that the economy is recovering there is little chance interest rates can decline much from these levels and a much better chance rates will increase.

The Fed and the administration are doing everything possible to keep rates from increasing. Finally the administration and Congress are getting it; until the housing markets are corrected there isn't much in the way of appreciable growth or job market improvements. For almost two years Washington and Wall Street have focused every waking hour on saving the big banks and the financial system, while Barney Frank and his headline grabbing dufusses look for any way possible to throw up roadblocks with inane regs and rules. Don't you wish that man was in your district so you could pull the plug on him? This Congress has done very little to aid recovery; what they have been doing is using this crisis to get additional toeholds in our personal and business lives. It is the most blatant grab of government control ever conceived in 80 years and sooner rather than later we are all going to pay dearly for letting it happen.

This morning the weekly MBA mortgage applications index was +3.2% from last week; it was all re-finances, its index up 11.3% while purchase applications dropped a huge 11.7% to its lowest level since Dec 2000. The refinance share of mortgage activity increased to 71.5% of total applications from 66.1% the previous week. The average interest rate for 30-year fixed-rate mortgages decreased to 4.90% from 4.97%, with points increasing to 1.03 from 1.01 (including the origination fee) for 80% LTV. The contract rate is the lowest observed in the survey since the week ending May 15th, 2009, when it was 4.69%. The average interest rate for 15-year fixed-rate mortgages remained unchanged at 4.33%, with points decreasing to 1.15 from 1.33 (including the origination fee) for 80% LTV loans.

Treasury reported the Oct budget data this afternoon; not good. The Oct federal deficit was higher than expectations. At $176.4B against expectations of between -$150B and -$160B. Sept deficit as -$155B. In 2005 the total annual budget deficit was $380B; the last two months almost matched the entire year's deficit. Lot of talk about in Washington but no actual concern; grabbing more power and control over 250 mil people is costly. Next up, President Obama will be setting up a commission to work on the deficit; hard to believe that it takes some kind of elite commission to say don't spend until you cut something.

The dollar had a good day for a change; and what we got was a decline in the stock market, a decline in oil prices and a decline in gold. Back in the day a strong dollar was something to be proud of, today a strong dollar is a plague on markets.

Tomorrow at 8:30 the Sept trade balance; a deficit of $31.9B is expected. At 10:00 the U. of Michigan consumer sentiment index is expected to be a little better than at the end of Oct, at 71.8 frm 70.6.

PRICES @ 4:00 PM

10 yr note: 99.13 +4/32 3.44% -2 BP

5 yr note: 100.17 +4/32 2.26% -3 BP

2 Yr note: 100.11 +1/32 0.81% -2 BP

30 yr bond: 101.23 +10/32 4.39% -2 BP

Libor Rates: 1 mo 0.238%; 3 mo 0.272%; 6 mo 0.524%; 1 yr 1.098%

30 yr FNMA 4.5 Dec: 101.13 +9/32 (.28 bp) (+12/32 (.37 bp) frm 9:30)

15 yr FNMA 4.0 Dec: 102.00 +8/32 (.25 bp) (+8/32 (.25 bp) frm 9:30)

30 yr GNMA 4.5 Dec: 101.19 +8/32 (.25 bp) (+10/32 (.31 bp) frm 9:30)

15 yr GNMA 4.0 Dec: 102.24 +8/32 (.25 bp) (+8/32 (.25 bp) frm (9:30)

Dollar/Yen: 90.39 +0.54 yen

Dollar/Euro: $1.4839 -$0.0138 (dollar stronger)

Gold Dec: $1103.40 -$11.20

Crude Oil Dec: $76.64 -$2.64

Goldman-Sachs

Commodity Index: 503.73 -9.46

DJIA: 10197.47 -93.79

NASDAQ: 2149.02 -17.88

S&P 500: 1087.24 -11.27