San Diego Home Mortgage Blog

Start the day floating.

Slowly but surely mortgage prices are improving, now technically as friendly as we have had in a month. Treasuries this morning leading the way early with the 10 yr at 8:30 +11/32 at 3.45% -4 BP and mortgage prices +3/32. One issue we continue to be concerned with; the bellwether 10 yr note is not as strong technically as we would want to see to become more bullish on the mortgage market. The 10 is still not able to crack its key MAs on the yield chart, keeping a slightly nervous tone on mortgages. At 9:00 the 10 yr +13/32 3.44%, mortgages +5/32 and the DJIA futures -35. At 9:30 the DJIA opened unch, 10 yr +11/32 3.45% -4 BP, mortgage prices +7/32 on 30s, +4/32 on 15s.

Another day with no economic releases; the feature today, the $25B 10 yr note auction at 1:00. Yesterday's 3 yr note auction was a barn burner, the highest cover ever for a 3 yr at 3.33 to 1. The 10 today is not likely to see that strong of demand but it would be a major shock if it doesn't meet with decent demand.

The dollar is a little better this morning. Yesterday the stock market rallied with sizeable gains in the key indexes as the dollar fell. This morning even with the dollar a little better crude oil is strong, the tropical storm hitting the Gulf is driving prices higher.

No data but we do get three Fed officials today; Lockhart (Atl Fed Pres) already this morning saying unemployment will stay high for a long time. Not news but reiterating the rationale that the Fed will keep interest rates low for much of 2010. We caution however, not to take the meaning that mortgage rates or long term treasuries will stay low. The Fed will likely keep the FF rate low but market factors could drive long term rates up while short rates stay firm. The steepening of the yield curve has been underway for weeks with long rates edging slightly higher while short term rates have held steady and actually have declined fractionally. Next up; Janet Yellen (SF Fed Pres) at 10:00. Markets will tune in to possibly additional clarity on the FOMC statement last Wednesday. Later this evening at 7:00 Dallas Fed Pres Fisher.

A CitiGroup analyst is out this morning warning that the US 10 yr note could jump to 3.70%. He bases is possible outlook on the Japanese 10 yr yield that has started moving higher recently. The Japanese bond has “generally led the moves in U.S. 10-year yields,” strategists led by Tom Fitzpatrick chief technical analyst at Citigroup in New York, wrote in a research report yesterday. The yield on Japan’s 10-year security touched 1.48 percent, the highest since June 17. According to the report if the Japanese 10 yr climbs over 1.56% it would project to 1.70 and send US long term rates up along with it. Just another voice and another forecast; no opinion here on that view. Probably wouldn't have mentioned it if there were more salient things to talk about this morning.

The rest of the morning and into the 1:00 10 yr note auction should be quiet, possibly pushing the present higher prices back a little. Markets fully expect the auction to register another well bid auction with foreign demand strong. Looking for some issue to trade on but none out there so far. The 10 still trading in a narrow range as it has now since mid Oct, unable to generate enough support to break below its 20 or 40 day MAs on the yield chart. Mortgages however, a little better technically but won't be able to hold much longer unless the 10 gains some strength.

PRICES @ 9:55 AM

10 yr note: 101.13 +10/32 3.45% -4 BP

5 yr note: 100.14 +2/32 2.28% -1 BP

2 Yr note: 100.10 +1/32 0.84% -1 BP

30 yr bond: 102.12 +24/32 4.36% -4 BP

Libor Rates: 1 mo 0.238%; 3 mo 0.272%; 6 mo 0.536%; 1 yr 1.120%

30 yr FNMA 4.5 Dec: @9:30 101.10 +7/32 (.22 bp) (+11/32 (.34 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Dec: @9:30 101.27 +4/32 (.12 bp) (+6/32 (.18 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Dec: @9:30 101.16 +7/32 (.22 bp) (+10/32 (.31 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Dec: @9:30 102.17 +5/32 (.15 bp) (+7/32 (.22 bp) frm 9:30 yesterday)

Dollar/Yen: 89.84 -0.11 yen

Dollar/Euro: $1.4981 -$0.0010 (dollar better)

Gold Dec: $1104.00 +$2.60

Crude Oil Dec: $80.24 +$0.81

Goldman-Sachs

Commodity Index: 513.63 +3.34

DJIA: 10239.64 +12.70

NASDAQ: 2159.57 +5.49

S&P 500: 1094.47 +1.39