Treasuries and mortgages opened soft this morning; at 8:00 the 10 yr -13/32, at 8:30 10 yr -14/32, mtgs -8/32 and the DJIA futures +35. At 9:00 the DJIA +40, 10 yr -16/32 at 3.60% and mortgage prices -9/32. At 9:30 the DJIA opened +60, the 10 yr -20/32 3.62%, mtg prices -13/32.
No economic data today, but the week has more than enough to think about in an environment where many are out for the holidays. Last Thursday the bond and mortgage market exploded in a strong rally, sending the 10 yr note rate down 12 basis points and mtgs down 10 basis points. Friday there was no follow-through and mtg rates edged up 5 bps; this morning the 10 yr yield is back to where it closed last Thursday, negating the rally as a one and out trade. Mtgs this morning at 9:00 also back to levels at the end of last Wednesday.
The bellwether 10 yr note, driver for mortgage rates, is back to 3.60%; the 10 has not traded above 3.60% since early August and is in for another test this morning. This week and next are difficult to draw conclusions on price action; trading volume is thin and many have closed books for the year. That said, if the 10 yr note closes above 3.60% it will project a technical move to 3.70% then to 3.80% taking mortgage rates up with it. With economic improvement and the Fed’s unwinding of quantative easing moves the outlook for interest rates is for higher rates on treasuries and mortgages. The Fed is almost finished buying its committed $1.25T of MBS ($250B left), it will end purchases at the end of March. Markets are increasingly concerned the Fed will have to move up their unstated timeframe for raising the Fed funds rate as the economy continues to gain momentum. Interest rates given the outlook have no way to go but higher, waiting for lower rates may take many out of the purchase and re-finance markets as we don’t expect rates will decline; the clearer path is for higher rates in Q1.
The dollar is fractionally weaker this morning against the euro, but there is consensus building that the dollar has already hit its lows and will continue to strengthen in the months ahead. Pushed higher on increasing belief that US interest rates will move higher and the US current account deficit will narrow somewhat, taking some of those dollars flowing around back to the US. Not good for interest rates though; with the dollar firming it will take higher rates to continue to attract buyers to the Treasury borrowing. US budget deficits at these lofty unheard of levels ($1.4T in 2009 and likely $1.5T in 2010) will come at a price—higher rates.
Market Minute information for December 21, 2009 provided by:
 Patsy Bailey Mortgage Banker |
 4801 Lang Ave NE Suite 100 Albuquerque, NM 87109 4001 Office Court Ste 603 Sante Fe, NM 87507 Cell: 505.715.3231 Office: 505.473.4045 ext.109 E-mail: patsybailey13@gmail.com |
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