San Diego Home Mortgage Blog

Start by floating; but unless there is improvement at the end of the day we will continue to lock and not float overnight. Keep close to the instant re-pricing alerts.

Treasuries and mortgage markets opened flat very early this morning after a day off for Veteran's Day yesterday. At 8:00 the 10 yr-2/32, mortgages unchanged and the DJIA futures -30. At 8:35 the 10 -4/32, mortgages -1/32 and the DJIA -32. At 9:00 the 10 -3/32, mortgage prices -2/32 and the DJIA -16. At 9:30 the DJIA opened -10, the 10 yr -5/32 and mortgages -3/32.

Weekly jobless claims at 8:30 were down 12K to 502K, the eighth week in a row claims have declined. Continuing claims also fell, to 5.63 mil frm 7.77 mil. The consensus for weekly claims was for an unchanged number. Although 500K a week going on unemployment is not much progress, it is nevertheless running in the right direction. There was not much reaction in the markets to the 8:30 report.

At 1:00 Treasury will finish the quarterly refunding with $16B of 30 yr bonds to be auctioned. Tuesday's 10 yr went well but wasn't the barn burner the 3 yr auction had on Monday. Still the weakening dollar is helping drive demand for US assets and debt. As long as the dollar is expected to fall further investors will continue buying US debt. It can't, and won't go on forever; enjoy it while it continues. Keeping mortgage rates low is critical to improvement of the still decimated housing sector. Foreclosures continue running high although the pace is somewhat less as lenders try different schemes to keep foreclosures as low as possible. Eventually many of the homes being worked to avoid foreclosure will end up there after attempts to save them fail.

President Obama hit the media at 9:45; said "we" created a million jobs. Announced he would hold a forum in Washington in Dec to brain storm with business leaders, unions and economists on ideas to increase employment. Any idea is on the table and will be considered. What he did remind, the government has less resources than it needs to make a serious dent in unemployment. His remarks took a total of 45 seconds so nothing specific. The comment of lessening government resources may imply that another stimulus package is still in the air.

At 2:00 Treasury will report the budget deficit for Oct, expected at a shortfall of $150B. The first month of fiscal 2010 isn't starting well, 2010 will likely rack up another $1.4T or so of deficits. Talk in Washington however is encouraging; Obama and Congress are talking about a commission that will be charged with the task of coming up with a plan to begin to reduce the expanding deficits caused by the recession, the wasted $787B of stimulus and the trillions tossed out to save the too big to fails. Meanwhile back in Congress another future spending hole is is giving birth; whether or not one believes the health care reform is necessary, the costs once the government gets into the game will accelerate. Not being negative; every program created by Congress has gotten out of control and cost containment has become impossible.

Two markets; equities and bonds, both discounting two views for the recovery. One of them is wrong, the obvious question is which one? The stock market is definitely trading on the belief the economy will be a V bottom and that it has already happened. Stock investors are laying sizeable investments on the idea the economy will recover at a fairly rapid pace and not back-slide from the progress so far (as little as it is). The bond market on the other hand is discounting a U shaped recovery. Interest rates are holding at low levels even as stocks are exploding; an odd and abnormal pattern in their relationships. The Fed for its part, even with the optimistic outlook coming from the FOMC that the economy is on the road to recovery, is keeping interest rates low and adding liquidity. This debate has more facets than a brilliant cut diamond, kind of game of Chicken, if the bond markets abdicate to the equity market thinking interest rates will run up rapidly and the Fed will tighten. On the other hand, if the equity market capitulates interest rates have a chance to decline but we wouldn't expect a big move lower.

Flat as the pancake; the bellwether 10 yr note, driver for mortgage rates, for last 40 days as maintained an average of 3.40%. Mortgages are only fractionally better technically.

PRICES @ 10:00 AM

10 yr note: 99.06 -3/32 3.47% +1 BP

5 yr note: 100.13 unch 2.29% unch

2 Yr note: 100.10 unch 0.83% unch

30 yr bond: 101.22 +10/32 4.40% -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: @9:30 101.05 -3/32 (.09 bp) (-6/32 (.18 bp) frm (9:30 Tuesday)

15 yr FNMA 4.0 Dec: @9:30 101.24 unch (-4/32 (.12 bp) frm 9:30 Tuesday)

30 yr GNMA 4.5 Dec: @9:30 101.11 -2/32 (.06 bp) (-5/32 (.15 bp) frm 9:30 Tuesday)

15 yr GNMA 4.0 Dec: @9:30 102.16 unch (unch frm 9:30 Tuesday)

Dollar/Yen: 90.32 +0.45 yen

Dollar/Euro: $1.4905 -$0.0068 (dollar better)

Gold Dec: $78.50 -$0.78

Crude Oil Dec: $1115.00 +$0.40

Goldman-Sachs

Commodity Index: 511.23 -1.96

DJIA: 10296.24 +4.98

NASDAQ: 2173.99 +7.09

S&P 500: 1099.49 +0.98