Happy Friday! The rates aren't very cooperative and are all over the board - definitely a moving target.  Commentaries are below from a variety of sources.

I used to be a top producer of the Oregon State Bond loan product - was in the top three of the state for many years running - then when I got into Sales Management my team did most of the OSB loans.  Now I'm back and planning to help lots of folks with this wonderful loan product.  Rumor has it that this program will be available after first of December - I don't want to get into trouble for quoting rates without APR - let me just say that rates on this program are a lot lower than traditional mortgages. COntact me and I can send you details on this program available only in Oregon.

Have a great weekend - should be a good one for getting the home organized and ready for Turkey Day - if you are traveling enjoy the "massage" at the airport.

From Think Big, Work Small

No data today to think about; the interest rate markets opened quietly this morning for a welcome change after the high volatility this week. In pre-market trading early this morning the key stock indexes were weaker after a strong rally yesterday took the DJIA up 173 points. At 9:00 the DJIA futures traded down 45, the 10 yr note +2/32 and mortgage prices -1/32 (.03 bp). Stocks in Europe and U.S. index futures fell as China added to efforts to limit the threat from the fastest inflation in two years.

The war of words escalated to outright direct criticism of China's refusal to increase the value of its currency. Bernanke last night in a speech in Frankfurt took the gloves off and warned China it must let the yuan increase or run the risk of pushing the world back into another leg of this recession. Meanwhile China is apparently willing to aggressively fight the Fed's QE as well as its exploding inflation rate. China's cabinet this week unveiled a package of anti- inflation measures including crackdowns on speculation in agricultural products and a threat of price caps on "daily necessities." China's argument against the Fed's easing move is that it will drive hot money into Asia and increase inflationary concerns. Bernanke wants the US inflation level to increase to keep deflation at bay.

Bernanke in Frankfurt continued to defend his QE move; saying it will aid the world economy, and implicitly criticized China for keeping its currency weak. The best way to underpin the dollar and support the global recovery "is through policies that lead to a resumption of robust growth in a context of price stability in the United States," Bernanke said. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said. The increasing disagreement between the two strongest economies in the world is one of the key issues driving interest rates higher; the Fed is intent on increasing the level of US inflation to avoid what drove the Great Depression as deflation of assets made it much worse. China in the meantime is making moves to stop its inflation spiral, keeping the yuan from increasing is one tool being used, but the risks to global recovery increase with it. 

Bernanke has used all the bullets he has; it now has to be turned over to Congress and the Administration; the Fed can't do anymore. Monetary policy has limits, now we need fiscal changes. Already the squabbles are building in Congress and the Administration even before the newly constituted Congress is seated.  

The Fed will buy another skimpy amount of QE 2 today; about $1.5B of long dated maturities (2028 to 2040). One of a few buys that are at the longer end of the yield curve. The 30 yr bond is rallying however not much change in the bellwether 10 yr note or in mortgage prices. We are focusing now on the 10 yr note yield at 2.96%, the level that has so far held selling. Mortgages are also working hard to hold support, the 200 day moving average and chart support at 98.00 (at 9:45 98.31 bp).

Expecting a quiet day today after the week's very volatile swings; no data and the weekend ahead. Next week more Treasury borrowing; $35B 2 yr note auction on Monday, $35B 5 yr note on Tuesday and $29B of 7 yr notes on Wednesday.

Mortgage Rates Rise For the First Time in Eight Weeks

 

McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage (FRM) and the 15-year (FRM) rose dramatically this week, as did the 5-year ARM.  The 1-year ARM remained unchanged from the previous week.

News Facts

•·         30-year fixed-rate mortgage (FRM) averaged 4.39 percent for the week ending November 18, 2010, up from last week when it averaged 4.17 percent.  Last year at this time, the 30-year FRM averaged 4.83 percent. 

•·         15-year FRM this week averaged 3.76 percent, up from last week when it averaged 3.57 percent. A year ago at this time, the 15-year FRM averaged 4.32 percent.

•·         5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.40 percent this week,  up from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 4.25 percent.

•·         1-year Treasury-indexed ARM averaged 3.26 percent this week unchanged from last week when it also averaged 3.26 percent. At this time last year, the 1-year ARM averaged 4.35 percent.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

•·         "Rates on 30-year fixed-rate mortgages were up to the highest level since early August and rates on shorter-maturity loans rose as well, although by somewhat lesser amounts. Retail sales rose by nearly twice the consensus in October and represented the strongest gain since March.  Moreover, consumer sentiment, as measured by the University of Michigan, ticked up in November to the highest level since June.

•·         The housing market is showing some potential gains as well. Although new construction on one-family homes dipped 1.1 percent in October, homebuilder confidence rose in November to the strongest level since June, according to the NAHB/Wells Fargo Housing Market Index. In addition, median house prices showed positive annual growth in 77 out of 155 metropolitan areas in the third quarter of this year, with 11 exhibiting double-digit increases, according the National Association of Realtors®; only 30 cities experienced positive annual gains in the third quarter of 2009.

From Dick Lepre, San Francisco

Friday November 19, 2010

Bernanke is defending QE today at a speech in Frankfurt.

Thursday November 18, 2010

Initial Jobless Claims were 439,000. Leading Economic Indicators was +0.5%, consensus was +0.6%, previous was +0.3%.  A large component of LEI is money supply and it is driven up by QE.  From Ireland and the rest of the EU, to the U.S. Treasury Department to the State of California we are seeing the price of fiscal irresponsibility.  Fixed income investors are concerned about 1) getting paid back (in the case of California) and 2) the effect that QE will have on inflation.  For fixed income securities those are the only two meaningful issues. 

Bloomberg has a story captioned: "Prime U.S. Mortgage Foreclosures Rise to Record on Unemployment."

On days such as today I regret that I did not go to graduate school and get a PhD in physics and pursue a simpler career such as  particle physics.  We may find the Higgs boson before we find a solution to our current economic woes.