We'll try holding rate locks this morning; float but stay tuned. The only way we get better rates is dependent on the action in the equity markets. Technically the rate markets still hold bullish bias but in the near term rate markets are tenuous.

Treasuries opened a little weaker this morning;

the 10 yr note at 8:00 -2/32 at 3.49%, mortgages opened a little lower (-2/32 at 8:15). The stock indexes were trading better at 8:30 but not much. At 9:00 the 10 yr -5/32 while mortgages were unchanged. At 9:30 the DJIA opened a little better, the 10 yr -5/32 and mortgage prices -1/32. (see below for 10:00 levels).

Astounding jump in mortgage activity last week; the overall composite index jumped 17.0% frm the previous week, re-finances were up 22.5% while purchases were up 9.5%. The refinance share of mortgage activity increased to 59.8% of total applications from 56.5% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.8% from 5.6% of total applications from the previous week. This was the largest gain since early April, putting the index at the highest level since the first week of January. Low mortgage rates are obviously the tonic to turn the housing markets around; most of the improvement is coming from first time buyers taking advantage of the tax credits that will expire soon unless extended.

At 1:00 this afternoon Treasury will auction $20B of 10 yr notes in the second of three auctions this week (tomorrow its $12B of 30 yr bonds). At 2:00 the Fed will release the Beige Book, the Fed's detailed report on the economy from the 12 Fed districts. Lot of detail in the Beige Book but generally nothing that markets are not already aware of.

We reported it yesterday in the PM report but it is worth reprising this morning. July consumer credit was released at 3:00 yesterday, expected to be down $4.1B consumer credit plunged $21.6B, June consumer credit, originally reported down $10.3B was revised to -$15.5B. The reaction to the continuing drop in borrowing by consumers? Nada! The stock market actually improved from 3:00 to the end of the session. Markets just don't care that consumers are circling their wagons, its onward and upward in this difficult to square economic outlook that has gained legs that defy conventional wisdom. Or do they? Recently the stock market has not improved, spending the past month generally flat-lined; the raging bulls see it as a pause before it moves higher. In the meantime interest rates have fallen; the 10 yr note yield in early August was at 3.80%, last Wednesday it it 3.28%. There are safety moves happening, big money is talking the talk but hedging bets moving into treasuries but not yet willing to sell stocks. We all know that consumer spending accounts for 65% to 70% of GDP, but these days markets don't want to think about it.

As the clock ticks and the mania increases in the equity markets things continue to worsen in the consumer sector. Bloomberg this morning is reporting more wealthy families are filing bankruptcy. Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73% in the second quarter from a year earlier, more individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are headed to bankruptcy court. Listings of homes for sale worth $1 million or more increased 27.3% in July from October, according to Zillow.com, a web site that tracks real-estate transactions. The number of homes sold with a value between $1 million and $2 million fell 23% in July from a year earlier. In my mind the current equity market enthusiasm has very little substance based on economic fundamentals, but it is what it is and until markets suck everyone in the outlook will remain upbeat in the face of all logic to the contrary.

PRICES @ 10:20 AM

10 yr note: 101.01 -4/32 3.50% +1 BP

5 yr note: 99.28 unch 2.40% unch

2 Yr note: 100.03 unch 0.94% unch

30 yr bond: 102.19 -8/32 4.34% +2 BP

Libor Rates: 1 mo 0.245%; 3 mo 0.298%; 6 mo 0.688%; 1 yr 1.266%

30 yr FNMA 4.5 Oct: 100.08 +1/32 (+1/32 frm 10:00 yesterday)

15 yr FNMA 4.0 Oct: 100.23 -2/32 (unch frm 10:00 yesterday)

30 yr GNMA 4.5 Oct: 100.12 -1/32 (+3/32 frm 10:00 yesterday)

15 yr GNMA 4.0 Oct: 101.12 +1/32 (+1/32 frm 10:00 yesterday)

Dollar/Yen: 91.66 -0.58 yen

Dollar/Euro: $1.4583 +$0.0092 (dollar weaker)

Gold Dec: $1,003.00 +$1.50

Crude Oil Oct: $72.16 +$1.06

Goldman-Sachs

Commodity Index: 459.66 +5.33

DJIA: 9536.04 +38.70

NASDAQ: 2050.87 +13.09

S&P 500: 1030.03 +4.64