San Diego Home Mortgage Blog

We will start by floating this morning, but keep in mind it is a bearish market. Stay close to our re-pricing alerts.

Treasuries and mortgages opened slightly better this morning after two hard days of price declines and increased yields. At 9:00 the 10 yr +3/32 at 3.54% -1 BP, mtg prices +3/32, the DJIA futures +6 points. At 9:30 the DJIA opened +45, the 10 yr at 9:30 +4/32 and mortgage prices +3/32.

At 9:00 the Case/Shiller home price index for August was expected to be down 11.90% yr/yr, improved 1.2% to -11.3% yr/yr for the 20 largest markets. It was the 4th month in a row prices have improved but still not much. Better than expected but not as good as the improvement seen in July. The headline said, it is a sign the housing markets are stabilizing. A step in the right direction but still a serious problem, we suspect the much of the improvement is due to the FTHB tax credit that is scheduled to run out at the end of Nov. Markets hoping Obama will extend the credit but reports of -----guess what-----fraud----are surfacing that may keep the credit from being extended. Can't go a day without reports of fraud in the housing sector.

At 10:00 Sept consumer confidence from the Conference Board, expected at 53.5 frm a revised 53.4 (frm 53.1) in Sept, was weaker at 47.7. Not good but still not a major surprise. The result took the stock market lower and added a bid in the rate markets.

At 1:00 this afternoon $44B of 2 yr notes are up for sale by Treasury; the first of three consecutive auctions raising $116B. It is every other week Treasury goes to the well that so far has a deep reserve and strong demand for US debt that is used to fund the deficit that has ballooned to levels still hard to put in perspective. Not a problem for Congress or the administration however, it is business as usual in Washington---toss as much money as possible with the hope it helps. The $787B stimulus package was and is a waste, and some talk there may be more waste coming.

Congress and the administration spending most of their time trying to deal with closing the door after the barn burned down. The House Financial Services Committee and Treasury are working on new ways to eliminate "too big to fail" with thoughts of holding creditors and stockholders feet to the fire on any future fails. Looks good on the headline but making bank creditors subject to being wiped out and stockholders at risk will likely make banks less willing to lend and capital less available. On the surface that kind of regulation is a good thing, the mega banks are too big to manage as they exist now, banks have clearly shown they cannot be trusted to make the conservative choices as the push to grow overshadows prudent judgment. The best way to stop what occurred in the greed binge that lead to this calamity is to shrink those giant banks; there is no economic reason or determent to growth if the mega banks are broken up.

It is pure fantasy to argue that large banks the size of those that have cost us taxpayers billions are necessary for economic growth. In less than two years the big banks and Wall Street have set the US back years and put many Americans in dire straits. There is no magic bullet out there, it was all greed; frm Wall Street, the banks, and Main Street. Main Street is getting it, but we suspect the others are still unwilling to accept the foundation on which this crisis was based. One question that is worth thinking about and is at the base of this crisis; who in their right mind really believed home prices would continue to increase 10% to 15% a year? Consumers are off the hook, not that knowledgeable and subject to believing so-called professionals, but banks and Wall Street? That was the underlying premise that the sub prime mess was built on.

Call your attention to the MBS Tracker and the chart of FNMA 4.5 coupon. Mortgage prices have had a bearish trend since breaking its 20 and 40 day averages (you can set those averages on the chart) and yesterday the price broke its near term chart support at 100.37. The 10 yr note broke above 3.50% with little difficulty, running to 3.57%. 3.50% was strong support, now becomes near term resistance and at 10:00 trading just slightly above 3.50%.

PRICES @ 10:15 AM

10 yr note: 100.26 +8/32 3.52% -3 BP

5 yr note: 99.20 +4/32 2.45% -4 BP

2 Yr note: 100.00 +2/32 0.99% -3 BP

30 yr bond: 102.18 +9/32 4.34% -2 BP

Libor Rates: 1 mo 0.243%; 3 mo 0.280%; 6 mo 0.576%; 1 yr 1.236%

30 yr FNMA 4.5 Nov: 100.11 +3/32 (.09 bp) (-2/32 (.06 bp) frm 9:30 yesterday)

15 yr FNMA 4.0 Nov: 101.04 +3/32 (.09 bp) (unch frm 9:30 yesterday)

30 yr GNMA 4.5 Nov: 100.16 +3/32 (.09 bp) (-3/32 (.09 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Nov: 101.27 +3/32 (.09 bp) (unch frm 9:30 yesterday)

Dollar/Yen: 91.96 -0.27 yen

Dollar/Euro: $1.4813 -$0.0052 (dollar better)

Gold Dec: $1036.10 -$6.70

Crude Oil Dec: $78.62 -$0.06

Goldman-Sachs

Commodity Index: 506.09 -2.75

DJIA: 9877.33 +9.37

NASDAQ: 2130.67 -11.18

S&P 500: 1066.34 -0.61