San Diego Home Mortgage Blog

If your loan is closing in the next 15 days I would lock it on a 15 this afternoon. The markets ran in our favor today and rates are great!

A good day for the bond and mortgage markets; the 10 yr note finally has been able to move out of its tight 10 basis point trading range that has kept it in check for the past two weeks. Mortgages are moving right along with the 10. The stock market may now be beginning the correction and pullback that even most market bulls have been expecting. Yesterday's key technical reversal and the lower indexes today along with other technicals looking soft, is attracting serious attention. Problem is however, investor and analysts continue to refuse to accept the reality of a new normal for the economy going forward, basing decisions on past recession recoveries. As long, or until something happens, to jolt that idea traders will be reluctant to lean heavily on the short side of equities. There has been a lot of money lost recently trying to pick the top in the equity market and betting on a correction, even though the majority continue to expect it will happen, but at what level though?

What may happens in the equity markets does not stay in the equity markets; it will affect the bond and mortgage markets. Interest rates have one, and only one trigger if we are to see substantially lower long term rates; a change in sentiment in the equity markets. Until pessimism takes hold and causes money to move to safety in treasuries, interest rates are not likely to fall a lot from present levels. That said, with no Treasury auctions for the next two weeks, IF (and based upon past recent attempts to drop stocks, it is a big IF) equities are at the beginning of a sizeable correction, interest rates will set up for a rally that will likely take mortgage rates down about 25 basis points from current rate levels.

Treasury successfully borrowed another $112B this week, selling 2s, 5s and today $29B of 7 yr notes. Overall the three auctions went smoothly; the 2 yr saw strong demand and aggressive bids; the 5 yr was the one that took third place. Today's 7 yr gets the first place blue ribbon. The yield at 3.005% against WI bidding at 3.015% this morning, the bid ratio at 2.79 to 1, and indirect bidders took 61.7% of it; the fourth month that indirects took over 60% of the 7 yr.The previous smaller $28B 7 yr auction saw 3.092% with a 2.74 bid-to-cover and a 61.2% indirect bidder participation rate against a seven auction average of the new-kid-on-the-block offering of 2.48 and 46.2%.

NY Fed bought $23.025B of agency MBS this week and will be in buying agency coupons in the 2016 to 2032 range on tomorrow. Yesterday in the FOMC statement the Fed said it will slow the MBS purchases and extend the completion from the end of this yr to the end of Q1 2010.

Tomorrow; 8:30 August durable goods orders; (+0.3%, ex transportation orders +1.0%). At 9:55 U. of Michigan consumer sentiment index (70.5 frm 70.2). At 10:00 August new home sales; (+1.5% to 440K units annualized).

PRICES @ 4:00 PM

10 yr note: 102.03 +12/32 3.37% -5 BP

5 yr note: 100.01 2.37% unch

2 Yr note: 100.03 +1/32 0.94% -2 BP

30 yr bond: 105.21 +24/32 4.17% -3 BP

Libor Rates: 1 mo 0.246%; 3 mo 0.238%; 6 mo 0.639%; 1 yr 1.231%

30 yr FNMA 4.5 Nov: 100.18 +9/32 (.28 bp) (+5/32 (.15 bp) frm 10:00)

15 yr FNMA 4.0 Nov: 101.04 +7/32 (.21 bp) (+4/32 (.12 bp) frm 10:00)

30 yr GNMA 4.5 Nov: 100.24 +8/32 (.25 bp) (+4/32 (.12 bp) frm 10:00)

15 yr GNMA 4.0 Nov: 101.26 +6/32 (.18 bp) (+2/32 (.06 bp) frm 10:00)

Dollar/Yen: 91.19 -0.24 yen

Dollar/Euro: $1.4661 -$0.0048 (dollar a little better)

Gold Dec: $996.30 -$18.10

Crude Oil Nov: $66.14 -$2.83

Goldman-Sachs

Commodity Index: 441.69 -13.24

DJIA: 9707.44 -41.11

NASDAQ: 2107.61 -23.81

S&P 500: 1050.78 -10.09