San Diego Home Mortgage Blog

Start by floating rate locks this morning but stay alert. It is as usual these days, the stock market that will drive rate market, also the treasury auction this afternoon ($38B of 3 yr notes).

Mortgage prices at 9:00 down 2/32 with the 10 yr note -5/32 to 3.46% +1 BP. The DJIA up 77 points at 9:00 and the other key indexes also higher. The dollar is being hit hard driving gold over $1,000 and crude up $3.00. At 9:30 the DJIA opened +60, the 10 yr note at 9:30 -7/32 3.47% +2 BP, mortgage prices -3/32. (see below for 10:00 levels)

At 1:00 this afternoon Treasury will start three days of auctions totaling $70B; today it is $38B of 3 yr notes, should go well as short end of the curve auctions have done for the past few months. At 3:00 July consumer credit is generally expected to have declined $4.5B after shrinking $10.3B in June. Consumers are cutting back on credit buying while banks are lowering credit limits on many cards. Consumers see the new normal for saving more and spending less, nevertheless the stock markets around the world are laying massive bets consumers will return to former habits.

Not much in the way of economic releases this week; treasuries and mortgages will take direction from the equity markets; it is the same as we have seen for the past two months. Bets on economic recovery versus further economic struggles; so far the markets are on the recovery side. However, the recent decline in interest rates suggests investors are hedging those bets a little by moving money into safety positions. The stock market has generally flat-lined for the past month while interest rates have declined 45 basis points on the 10 yr note and 40 basis points on 30 yr mortgages since the beginning of August.

This Week's Economic Calendar:

Wednesday;

7:00 weekly MBA mortgage applications (may be delayed to Thursday)

1:00 $20B 10 yr note auction

2:00 Fed Beige Book

Thursday;

8:30 weekly jobless claims (-10K to 560K; continuing claims 6.20 mil frm 6.234 mil last week)

July Trade deficit (-$27.4B)

1:00 $12B 30 yr bond auction

Friday;

8:30 August import and export prices

9:55 U. of Michigan consumer sentiment index (67.8 frm 65.7 at the end of August)

10:00 July wholesale inventory levels (-1.0%)

2:00 August Treasury budget (-$162B)

By 10:00 this morning, after looking strong early in the futures trading, the stock market was still holding gains but has already backed off the best levels seen on the open at 9:30. Global markets all rallied overnight which led to the strong open. Treasuries struggling a little this morning with the Treasury auctions this week. Not a lot of juice for the squeezer this week, making trade a little more precarious. Last Wednesday the 10 yr note hit our target at 3.28% and failed to take it out, now the bellwether 10 yr note is approaching its key 20 day MA at 3.50% taking out its first technical support at 3.42% last Friday. Mortgage prices at 10:00 holding generally unchanged but lower than at 10:00 last Friday.

The dollar is weak this morning driving crude oil and gold higher with gold trading slightly over $1,000.

Banks are opening their pocket books a little recently; data indicates increased lending to investors that are buying corporate bonds and mortgages. A positive, but banks still reluctant to lend anywhere near the levels prior to the crash. PIMCO still forecasting very slow economic recovery; Bill Gross's letter to clients aims at the "new normal" coined by El Arian a few months ago.

PRICES @ 10:10 AM

10 yr note: 101.17 unch 3.44% unch

5 yr note: 100.05 +2/32 2.34% -1 BP

2 Yr note: 100.05 +1/32 0.91% -1 BP

30 yr bond: 103.24 -5/32 4.28% +1 BP

Libor Rates: 1 mo 0.249%; 3 mo 0.301%; 6 mo 0.700%; 1 yr 1.278%

30 yr FNMA 4.5 Oct: 100.07 +3/32 (.09 bp) (-6/32 (.18 bp) frm 10:00 Friday)

15 yr FNMA 4.0 Oct: 100.22 +1/32 (-5/32 (.15 bp) frm 10:00 Friday)

30 yr GNMA 4.5 Oct: 100.09 +1/32 (-6/32 (18 bp) frm 10:00 Friday)

15 yr GNMA 4.0 Oct: 101.12 +2/32 (-4/32 (.12 bp) frm 10:00 Friday)

Dollar/Yen: 92.25 -0.80 yen

Dollar/Euro: $1.4472 +$0.0141 (dollar weaker)

Gold Dec: $1,003.30 +$4.60

Crude Oil Oct: $70.11 +$2.09

Goldman-Sachs

Commodity Index: 452.40

DJIA: 9479.58 +38.31

NASDAQ: 2028.21 +9.63

S&P 500: 1022.64 +6.24