Looks like a choppy day ahead for Phoenix interest rates; I will continue to float interest rate locks to start but our finger is on the trigger based on the technicals.

Treasuries and mortgages (interest rates) opened weaker this morning after a strong rally yesterday for treasuries, taking the 10 yr note rate to its lowest in two months. At 8:00 the 10 yr -7/32, DJIA -16. At 8:30 the 10 yr -12/32 3.38% +5 BP, mortgage prices -8/32, DJIA -6. At 9:00 10 yr -12/32 3.38% +5 BP, mortgage prices -4/32 and the DJIA -13. At 9:30 the DJIA opened -26, 10 yr note -8/32 and mortgages at 9:30 -2/32.

Oct PPI out at 8:30, a good report for the inflation outlook. The overall PPI increased 0.3%, estimates were for +0.5%; the core excluding food and energy -0.6% against estimates of +0.1%. Yr/yr overall PPI +1.9%, the core yr/yr +0.7%; both lower than ion Sept. On the knee jerk the 10 yr recovered fro a moment then made new lows (price); mortgages tried to catch a bid but they too were printing new lows in the very early activity.

Looking back to yesterday; interest rate markets were rock solid most of the day with double digit price gains, a few lenders re-priced about 2:00 reflecting the improvement from morning prices. Interest Rates looked very strong until Dallas Fed Pres Fisher said he expected mortgage interest rates to widen over treasuries in the period ahead. That did it; heavy selling exploded in mortgages and all the gains were erased within 30 minutes. Later in the afternoon mortgage interest rates made another attempt to regain footing but going into the end of the day (5:00) mortgages once again were hit by selling leaving mortgage prices only 2/32 better than at 9:30 yesterday morning after being up 10/32 from morning pricing levels. This was a quick retreat for interest rates.

The economy has lost 15 million jobs so far; 876K jobs have been lost since July. Big numbers, the unemployment rate increased 0.4% from Sept to Oct to 10.2%. Banks still are reluctant to lend and remain vulnerable to further pressures. Yesterday Meredith Whitney, one of the premier bank analysts, said she thinks bank stocks are over-valued, causing bank stocks to slip on her comments. She added her name and reputation to the view of a double dip recession ahead; not looking for a re-test of the lows in the stock indexes but still a W on the economic recovery. Continued uncertainty, with the Fed cheer leading while many very reputable analysts are sounding bearish. The result for the bond market is an increase in volatility; rates at these low levels require continued verbal support, any comments to the contrary will set up selling keeping long term interest rates confined to tight ranges. In our view, unless consumers begin to spend the economic recovery will be slow and likely drag on through next year; bullish outlooks continue to ignore the fact that consumers account for 70% of GDP growth and concentrate on the idea the economy can recover as a jobless recovery.

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Continue to float locks; we’ll go with it to start; no movement now until after Bernanke’s speech at about 12:00. Interest rates do not appear to have substantial volatility this morning.

Good start today; the interest rate markets opened stronger on the continuing weak dollar and slowly improving technicals. At 8:30 the 10 yr +8/32 3.39% -3 BP, mortgage prices +3/32; the DJIA futures +50.

8:30 brought Oct retail sales; expected to be +0.9% overall and ex autos +0.4%, as released sales were +1.4% overall and ex autos +0.2%. Initial reaction boosted interest rate prices a little and softened the stock index improvement but within minutes stock indexes bounced back and the rate markets backed off to where they were trading prior to the report. Retail sales are increasingly of interest to the interest rate markets as we move into Christmas shopping ( the politically correct reference is Holiday shopping). Retailers are racing to get what there is out there from consumers, normally late holiday price reductions are happening now.

The weakening dollar continues to drive interest rates lower and equity prices higher; the dollar is soft this morning (again). Who wants a strong dollar? No one; not the Fed, not Treasury and not Pres Obama (haven’t heard from Barney on his take; we think he is working on how he can blame mortgage brokers for the dollar fall). In his speech this afternoon Bernanke will likely have nothing to add or comment about the crashing dollar; it isn’t in the Fed domain of responsibility, Treasury leads on currency issues.

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Friday Phoenix mortgage interest rate update……….

I will continue to float over the weekend, but I caution not to let the locked loans pile up; keep your exposure from taking on too much risk. Like the market but not in love with it.  Interest rates have improved today.

If you were not watching the interest rate market early this morning you would think today wasn’t much of a day given the employment report this morning. As is the case most of the time, the employment report sets off hip shooting that results in lots of traders getting their pocket books lightened. Today when the unemployment rate hit 10.2% the bond market exploded in a strong rally, the stock index futures rolled down hard and mortgage prices jumped. It took about 30 minutes to settle down, then by 9:30 selling took over in the bond market and the DJIA traded up as much as 75 points at 9:50. Mortgage interest rates and treasuries dropped their gains, went negative, sat weaker for 30 minutes before returning to spend the rest of the day unchanged on the 10 yr and stock market while mortgages bounced back to levels at 9:30. Who cares? Lenders that priced before 9:30, market commentators like us and traders licking wounds on their knees. Just a rehash of how volatile the employment report usually is.

Non-farm job losses in Oct were more than expected, -190K; but were offset by a cumulative increase in job losses previously reported by 91K in Sept and October. The upward revisions were the saving grace and provided the spin the rest of the day. While unemployment is increasing and likely to hit 11% in the next year, it generally is pushed aside by traders in favor of the non-farm jobs counts; that is, when it is convenient. When unemployment rates begin to decline that data will be the focus. Still putting lipstick on the sow and trying to get her to the prom; the employment situation is getting worse, not better; no matter the spinners that see non-farm jobs only falling 200K a month as “good news”.

Consumers continue to cut credit; Sept declined $14.2B, mkts were expecting -$10B. The fourth consecutive month credit expansion declined. Banks are contributing by refusing to extend credit to otherwise qualified people.

President Obama signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up. Passed overwhelmingly by Congress, the bill would provide a $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1. The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous eight. But there are caps on the tax credits. They only apply to individual buyers who make no more than $125,000 and $250,000 for couples. There is also an anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money. The FTHB was extended to cover consumers signing a contract by April 30 and closing by June 30.

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I will continue to float this morning; not real bullish but willing to start holding locks. Keep abreast to the instant re-pricing alerts. Still a nervous trade.

Very early this morning the bond market tried to improve but got a gut punch on weekly jobless claims and settled back.  Interest rates at this time have remained stable.  At 8:00 the 10 yr note +3/32, mtg prices +1/32 and the DJIA +9. At 8:30 the 10 yr -1/32, mtgs -1/32 and the DJIA +40. At 9:00 the 10 -4/32, mtgs -1/32 and the DJIA +60. At 9:30 the DJIA opened +80, the 10 yr -4/32 and mortgages holding at unch.

Weekly jobless claims were expected to have declined 10K, they were down 20K to 512K for last week, the lowest weekly claims figure since early January when they were -488K. Continuing clams were lower also; at 5.749 mil from 5.817 mil the previous week. Jobless claims can have a huge impact on interest rates.

Also at 8:30 Q3 productivity, expected to be +6.5%, it jumped to +9.5%.  Not a positive sign for those looking for jobs; increasing productivity is getting more from employed workers than has been seen in six years. Unemployment figures are critical to interest rate movement.

Senate passed the bill extending the home buyers tax credit and adding 14 weeks to unemployment insurance; it goes to the House for quick passage then to Obama for a TV extravaganza signing event. This should have a positive impact on interest rates.

Yesterday’s statement from the FOMC meeting is still being chewed. Although the Fed said it would keep interest rates low for an “extended” period even as the economy shows early signs of growth and inflation isn’t a concern, it isn’t sitting well with fixed income investors. Traders and investors fear the Fed will repeat its mistakes of the past by keeping rates low too long, setting off an inflation spiral. Can’t necessarily agree with that view but it is in play with interest rate levels as low as they are. Unlikely Bernanke will make the Greenspan mistake, letting rates so low it set off the financial collapse and economic mess we face today. Greenspan blew it in hindsight (always crystal clear); he kept rates low to long and let liquidity build, the combo set banks and Wall Street on a binge that only Barney Frank could fix (yea right). Bernanke isn’t likely to make that mistake. Inflation fears are at once real and overblown now; but with long term rates at historically low levels and the easiest path up, traders and investors will not waiver on inflation concerns.

Retailers posted mixed October same-store sales, with teen-focused chains posting lower-than-expected sales, as the industry gears up for the critical holiday season. Teen retailers shares slumped on the news in premarket trading. But a handful of retailers reported better-than-expected sales, including Stage Stores Inc., Stein Mart Inc. and Wet Seal Inc. Gap Inc.’s same-store sales rose 4%, and the casual-clothing retailer said it expects fiscal third-quarter earnings above Wall Street’s expectations. October isn’t typically a strong sales month for retailers — proving a lull between back-to-school shopping and Christmas shopping.

With employment tomorrow look for generally quiet trade today in both stocks and bonds. Rate markets have a big hurdle; employment and next week’s refunding, $81B of notes and bonds.

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I am starting today by floating my interest rate locks; however, after the strong rally in the past few days the bellwether 10 yr note and MBSs both have found some resistance at key MAs. Set your Alert Controller and keep tuned for our static quotes through the day.

Early this morning the 10 yr and mortgage started slightly weaker after two strong days of price gains; the 10 yr at 8:00 -3/32, mtgs at 8:15 -2/32. Data at 8:30 however, sent prices down and yields higher. At 9:00 the 10 yr -15/32, mtgs -7/32 and the DJIA futures +80. At 9:30 the DJIA opened +60, 10 yr note -11/32 and mortgage prices at 9:30 -3/32.

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Weekly jobless claims at 8:30 were down 1K to 530K, not as much of a decline as expected (-5K). Continuing claims did decline 178K to 5.797 mil frm 5.94 mil last week; markets saw that as a significant improvement in the jobs outlook but that is way off base thinking. Declining continuing claims would normally be a positive for the employment outlook if this were a normal recession.This is NOT good news of interest rates.

Also at 8:30 the first look at Q3 GDP; better than expected, +3.5% frm -0.7% in Q2. Market consensus was for +3.2%. It is history however, we are well into Q4. Nevertheless the better growth triggered buying in the stock index futures and drove the stock market to a better open at 9:30. Along with the decline in continuing claims and after the 330 decline in the DJIA in the past four sessions investors look to be “bargain” hunting to start the session. Equities are also getting help from the dollar, weaker this morning. If not for the dollar plunge the equity market would have very little support; a high percentage of the recent rally in stocks is coming from foreign investors taking advantage of the falling buck.

Let today’s low interest rates help make your new home purchase affordable.

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We will start by floating this morning, but keep in mind it is a bearish market. If you are working with me I will stay close to our re-pricing alerts. I will lock interest rates based on the market today

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. This should have a positive impact on interest rates this morning.

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. This does have a impact on interest rates in the coming weeks.

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.

If you are a Phoenix Homebuyer and need a low interest rate loan, get started here

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I suggest starting the day by floating; we normally do that. It is a bear market now however so we will not press it and move to lock mode on any weakness. If you float today keep close for our alerts. Unless mortgage markets gain a little traction through the rest of the day we will lock over the weekend.Look for interest rates to remain stable today.

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As we expected, the 10 yr and mortgages opened slightly better this morning with the benchmark 10 yr testing its technical support yesterday and holding it at the 3.50% area. No change in the bearish path however, just a bounce in what we believe will be a range for the note and mortgages of about 25 basis points (3.50%/3.25% on the 10) and 5.00% to 5.25% for 30 yr mtgs. At 9:00 this morning the 10 yr note traded +8/32 at 3.44% -2 BP; mtgs +5/32 (.15 bp). The DJIA futures traded -58 on some weaker than expected earnings reports. At 9:30 the DJIA opened -95; 10 yr +12/32 3.42% -4 BP, mtg prices +5/32.

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Prior to the equity market open at 9:30; Sept industrial production was expected to +0.2%, it jumped 0.7% and August production increased from 0.8% to +1.2%. Manufacturing output rose 0.9%, lower than +1.2% in August. Sept capacity utilization, also better than expected, 70.5% against estimates of 69.6%; August capacity use was revised slightly better to 69.9% frm 69.6% originally reported. Manufacturing use increased to 67.5% frm 66.8% in August. The reaction to the better data pushed mortgages backed to unchanged and the 10 yr note from +8/32 to unchanged.

At 9:55 the U. of Michigan consumer sentiment index, expected at 74.0 frm 73.5 at the end of Sept, was lower at 69.4. The 12 month outlook question on the survey fell to 79 frm 88.0 at the end of Sept; consumer expectations at 67.6 frm 73.5 at the end of Sept. The survey is subject to wide variations at times, but does take some wind from the sales and reminds consumers are still not in the game of recovery being so heavily bet in the equity markets. No real positive reaction to the report in the bond and mortgage markets but the DJIA fell 10 points on the report.

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The stock market is opening lower this morning on reports from BofA and GE; BofA took another $1B loss for the quarter, the second this year. Loan defaults drove the losses. GE made a profit by cost cutting but its revenues fell short of expectations.

Treasury reported August net foreign purchases of US debt. A total of $32.9B in August; $21.3B by private foreign investors, $11.6B by foreign “official” institutions (central banks) and $4.3B by US residents. No need to look any farther as to who is supporting US deficits.

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Being Friday trade will likely have a narrow range through the remainder of the day. The wider outlook is bearish for the bond and mortgage markets; the shorter view however is a little better after the 10 yr note managed to  hold its first key support at 3.50% yesterday. Still looking for a trading range on the note and mortgages of about 25 basis points; 3.25% to 3.50% on the 10 yr and 5.00% to 5.25% for mortgage rates. So far this morning mortgage markets are somewhat soft.

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Floating is going against the grain these days with the rate markets bearish. However, we always look for that opportunity to catch a bounce. If you are able to keep tuned to our rate alerts we suggest floating to start, but if you are unable to keep close we suggest locking through the day. We will not float overnight unless mortgage prices improve enough to reduce overnight risk (+.25 bp frm initial pricing levels)

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More selling in the interest rate markets this morning. Prior to 8:30 data the 10 yr note was off 5/32 and mortgages were unchanged, the DJIA futures trade had the index -25 after closing slightly above 10K yesterday At 8:30 weekly jobless claims were down 10K to 514K; continuing claims also declined to 5.992 mil from 6.067 mil last week. Sept CPI was fractionally higher than forecasts; +0.2% for both the overall and the core (ex food and energy components). Finally at 8:30, the NY Empire State manufacturing index jumped to 34.57, the estimate was a decline to 17.5 frm 18.88 in Sept, new orders component jumped to 30.82 frm 18.82 (above zero is expansion). All three reports added more negative response in the bond and mortgage markets.

On the weekly claims; continuing claims are declining but may be due to those unemployed running out of unemployment benefits. 514K new filings however isn’t a reason to cheer too much, workers continue to lose jobs at a lesser rate but jobs are still eroding. On the CPI, inflation based on the Sept report suggest a slight increase on the core, but so far we consider it an anomaly, traders however are on edge with the inflationary outlook with interest rates at the current low levels. Don’t have much to comment about on the NY Empire State index jumping like it did, rather surprising given the index was expected to decline, it didn’t go unnoticed by traders.

At 10:00 the Philly Fed business index was expected at 12.5 frm 14.1 in Sept, as reported the overall index fell to 11.5; new orders at 6.2 frm 3.3, prices pd at 21.3 frm 14.9 and employment at -6.8 frm -14.3. Overall the report is slightly better but not nearly as robust as the earlier NY Empire State data at 8:30. No initial reaction to the report in either stocks or bonds.

The bellwether 10 yr is approaching where we expect to hold at 3.50%. Looking for a new range between 3.25% and 3.50%. The 10 yr and mortgages are however technically bearish and it is not advisable to make decisions that the 3.50% will hold until it actually is tested. Both mortgages and long term treasuries are trading below their 20 and 40 day moving averages and have broken various chart support levels after interest rates declined to unsustainable levels based on the increasing view the economy is recovering.

PIMCO is betting on deflation based on the view that the economic recovery will be slow and lethargic. PIMCO reduced its holdings of mortgages in favor of long term treasuries a month ago on the bet deflation and not inflation will keep interest rates low. The increase in treasuries was minor however, from 44% to 48% of the total $185.7B Total Bond Fund. Traders concerned about inflation, Bill Gross at PIMCO concerned that deflation is the coming issue. A lot of uncertainty about the outlook in 2010 will keep volatility high with overall interest rates at these historic low levels.

The FOMC minutes yesterday noted some of the members want to consider having the Fed buy mortgage MBSs after the $1.25 commitment runs out at the end of Q1 2010. If the Fed does signal it will continue to buy MBSs it will keep mortgage rates from increasing as much as they would otherwise. Mortgage rates however will track the 10 yr note direction; if interest rates increase so too will mortgage rates but with less of an increase if the Fed is in the game.

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Mortgage prices are already lower than at 9:30 as seen below. The 10 yr has taken out its support at 3.28%, the next level of support is right where the market is at 10:00, 3.32%, the 20 day moving average. We suggested locking yesterday, still really don’t like the risk. If you float today pleas keep alert for our rate alerts. After the recent decline in rates, markets are rejecting the low yields.

Treasuries and mortgages started a little better early this morning; at 8:30 the 10 yr +2/32, mtgs +1/32, but didn’t hold. Stock index futures were lower, the DJIA -26 at 8:30 on a better dollar. At 9:00 the 10 yr note fell out of bed, -12/32 at 3.30%, mtgs -6/32, the DJIA futures -12. At 9:30 the DJIA opened +5, 10 yr note -10/32 at 3.29% and mortgage prices -4/32.

August trade deficit was slightly better than expected, -$30.71B against estimates of -$33B; no reaction to it as usual. The world knows the US runs trade deficits, importing a lot more than exporting. There are no more data feeds the rest of the day. Today is all about Fedspeak; Fed officials are speaking everywhere today. Lockhart of ATL (8:30) vice-chair Kohn (12:00) and St. Louis’s Bullard (2:00).

Last night Bernanke reiterated again that he will be ready to remove stimulus when “the economy has improved sufficiently”. “My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period,” he spoke at a Board of Governors conference in Washington last evening. “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.” “Looking at the amount of excess capacity in the economy, looking at the low rate of inflation, we believe that conditions will warrant policy accommodation for an extended period,” he said.

Most economists surveyed by Bloomberg are rather pessimistic on the outlook for increased consumer spending in Q4; with unemployment exceeding 10% next year consumers are likely to refrain from the pace of spending in the past quarter. According to the survey of 50+ economists consumer purchases will increase just 1.0% this quarter after increasing 2.4% in Q3. Household spending will grow at a 1.5% pace in the first three months of 2010, and 1.8% in the second quarter, the survey showed.  Obama is considering, and likely will do it, extending the first time homebuyers credit, extending unemployment insurance past the current 27 weeks (if that occurs continuing unemployment claims will increase again after recent declines).

The US, world’s largest economy, contracted 3.8% in the year ended in June, the worst economic slump since the 1930s.

Normally when a market holiday occurs on Monday the bond and mortgage markets close the previous Friday at 2:00; today not the case, markets will not close early. Not a big deal except for traders looking for an early exit.

The 10 yr note, driver for the mortgage markets, hit 3.10% last Friday on the initial reaction to the higher than expected job losses in Sept but rebounded to close at 3.18% that day. Since then the 10 yr note rate has slowly increased to 3.31% at 10:00 this morning and mortgage rates, while holding well against the increase on the 10 yr, are also edging higher. We do not expect the 10 can fall below 3.00% unless the outlook for the economy swings 180 degrees from the current overwhelming consensus that the worst is behind us and recovery will continue. 30 yr bond traded briefly under 4.00% yesterday morning (3.96%) until the auction; the 30 yr is unlikely to fall below 4.00%. Mortgage rates for 30 yr fixed with 20% down are not likely to decline much more from present levels if the economic recovery outlook remains as it is now.

For more information, or to get started on an Arizona FHA, VA or USDA loan, call my office at (602) 291-4362