Update - Last week was a good week for shoppers of San Diego mortgage rates, California mortgage rates and mortgage rates all over. Friday's news of the Goldman Sachs indicment sent investors running for the safety of bonds. The bond market continues to perform well this morning but we are off the highs of the day and up against some tough resistance. Floating very carefully for now but with a quick finger on the lock trigger.
Here is today's market snapshot from RateAlert.com:
Friday the bond and mortgage markets were driven lower in yields on the announcement from the SEC that it was filing civil fraud charges against Goldman-Sachs, implying the firm allowed Paulson& Co. to select sub prime loans that went into a CDO security that Goldman was putting together to sell to investors. Paulson, according to the SEC was openly going to short the CDO and picked the worst possible mortgages to put in the CDO. Investors including Royal Bank of Scotland Group Plc and Germany's IKB Deutsche Industriebank AG lost about $1 billion from the trade. Goldman Sachs denies wrongdoing. Goldman has indicated it did nothing wrong and will defend itself "vigorously". The suit may also strengthen political pressure for more regulation of derivatives and similar complex financial structures, threatening earnings. The SEC is investigating transactions by Deutsche Bank, UBS and the former Merrill Lynch in the mortgage securities market, the New York Post reported today, without saying where it obtained the information.
This morning the G/S fraud suit remains the hot topic with various outlooks as to implications for the financial markets in terms of regulatory reform. No doubt whatever comes from new regs will be more stringent that if the Goldman thing hadn't happened. The SEC and now the British government are increasing scrutiny now and will look closely at other firms that sold the junk to unsuspecting investors. Large investors and central banks bought the junk without looking at the details in the prospectuses and simply relying on the AAA ratings that were issued by the rating agencies. We wonder when the SEC will take on the rating agencies, the three agencies (S&P, Moody's and Fitch) have greased through all of this without much focus. Who paid them what, and how much? It was then, and even more so now, a question that never has been answered; AAA ratings on junk that was doomed to fail needs explanation.
At 9:00 this morning the DJIA futures was off 41 points, the 10 yr note -3/32 at 3.77% +1 bp and mortgage prices at 9:00 were trading -2/32 (.06 bp). Both the 10 yr treasury and the 4.5 FNMA May coupon are testing and holding so far at their respective 40 day moving averages. To break through those key averages the bond market will need another heavy sell-off today. At 9:30 the DJIA opened -20; 10 yr -2/32 and mortgage prices -2/32 (.06 bp).
At 10:00, the only economic data today, March leading economic indicators expected +1.0%, was up 1.4%. Feb LEI was revised to +0.4% frm +0.1%. No immediate reaction but it is one more data point that is better than forecasts.
This Week's Economic Calendar:
7:00 am MBA weekly mortgage applications
8:30 weekly jobless claims (-29K to 455K; continuing claims -39K)
Mar PPI (+0.5% overall, ex food and energy +0.1%)
10:00 March existing home sales (+5.2% to 5.30 mil units annualized)
FHFA Feb home price index (-0.2%)
11:00 Treasury announces the auctions of 2, 5, and 7 yr notes and 5 yr TIPs next week
8:30 Mar durable goods orders (+0.2% overall; ex auto sales +0.6%)
10:00 Mar new home sales (+5.2% to 325K units annualized)
President Clinton was on "This Week" on ABC on Sunday; he made the statement that Robt Ruben his Treasury Sec and Larry Summers were wrong in the advice they gave him about regulating derivatives when he was in office. "I think they were wrong and I think I was wrong to take" their advice, Clinton said. The two argued that derivatives didn't need regulating because they were expensive and sophisticated that only a handful of investors would be involved in them. Clinton said "the flaw in that argument was that first of all, sometimes people with a lot of money make stupid decisions and make it without transparency." Meantime back at the ranch of crow eating, Robt Ruben who left Clinton to become vice chair of Citi, testified on April 8 before the Financial Crisis Inquiry Commission, said "derivatives should be subject to collateral and margin requirements, standardized derivatives should be exchange traded, and customized derivatives should have a clearinghouse or, at least, greater disclosure requirements."
President Obama is headed to New York on Thursday to talk about the unraveling of the dirty secrets that Wall Street is a fixed game when it comes to the bond market and all things associated with the huge bond markets. The equity markets have many checks and balances making that sector generally a safe arena; but the bond market which dwarfs the equity markets is no game for outsiders. The Goldman thing and the bailing out of the banks that were complacent in the mortgage market meltdown are finally going to be dragged out in the open and the stench will be stronger than many imagine now.
Crude oil continues its recent sell off this morning, down $2.00 to $81.00; it is a temporary decline triggered by the Iceland volcano ash that has halted most flights in Europe that lessens the need for jet fuel. That is the headline, but the rake away is that crude oil continues to be a speculators paradise for big moves in either direction. Once the ash goes away crude will start back up again.