After three days of selling in the stock market, the equity markets opening better this morning. Stocks up, interest rate prices lower; that is what we live with these days. The 10 yr note -12/32 at 9:15 the lowest of the session so far, the rate at 2.03%; mortgage prices -7/32 (.22 bp). The 10 yr note still working at 2.00%; yesterday morning in Europe the note yield fell to 1.91% then spent the US trading moving slowly higher to end the day at 1.98%. At 9:15 this morning the stock indexes were aiming to a higher open; the DJIA +137 and moving up into the 9:30 open.
There are no economic reports today until 2:00 this afternoon when the Fed will release its Beige Book; the Fed's detailed economic data from the 12 Fed districts. Generally nothing in the Book that markets are not aware of, but it does provide more detail from specific districts The Book normally doesn't present any surprises.
Early this morning the weekly MBA mortgage applications for last week showed minor gains in purchases but a decline in re-finances. The composite index for the week -4.9%. Low rates aren't boosting demand for refinancing or home purchasing, according to the Mortgage Bankers Association whose refinance index fell for the third straight week, down 6.3% in the September 2 week, with the purchase index up only 0.2% to hold near record lows. The 30-year mortgage rate, down nine basis points in the week to 4.23%, is near the record the low of last October. The 15-year rate, down eight basis points at 3.41%, is at a record low. This report offers very timely indications on the housing market as will this afternoon's commentary in the Beige Book.
Consumers have little reason or incentive to buy these days with prices and interest rates falling. Many that would like to re-finance and improve their financial situation are unable due to extreme tight underwriting and low appraisals. If the President and Congress want to do something that doesn't cost and may increase consumer confidence and spending they should open the pipeline increasing re-financing. Instead we have the FHFA launching $200B of lawsuits against banks and individuals over sub-prime bad loans. Will the FHFA also sue S&P, Moody's and Fitch for rating the CDOs made up of sub prime loans at AAA? No! If the government were to get out of the way the US economy would improve more quickly. Re-finance all mortgages that are current and have been current for six months with no appraisals and no credit underwriting; but no cash outs unless the appraisal allows it. Lowering mortgage payments is the same as getting a bonus or an increase in pay.
At 9:30 the DJIA opened +130, the 10 yr note -13/32 at 2.03% +5 bp and mortgage prices -7/32 (.22 bp) on 30s and -3/32 (.09 bp) on 15s.
The world is waiting for Obama tomorrow evening and what the opposition party will do with his proposals. Some of what he will announce is already out there; what isn't clear is how the Republicans will take it. Obama over the weekend set it up, saying politics has to be put aside. Yesterday John Boehner sent a letter to Obama indicating a somewhat conciliatory tone.
The 10 yr note really testing the 2.00% level, unable to sustain it below 2.00% for any length of time. We don't expect it will be easy to push rates much lower, however if the Fed steps up and increases buying at the long end of the curve the 10 will have an easier time of it. If, and it is a huge if, Obama and the Republicans can turn the outlook around with his plans the 10 won't hold below 2.00% and likely will edge higher----but not much.
MORTGAGE PRICES AT 10:05 AM, NOW 8/32 (.25 BP) LOWER THAN AT 9:30.
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