Mortgage Rate Update



This week will continue to be on what happens in Europe with the debt issues. It is not going to fall off the front page for out markets for many months; on Friday the leaders in Europe are scheduled to meeting on Friday. Markets are hoping there will be some kind of plan that emerges to deal with the debts of Spain and Italy but after two years of trying it is a leap of faith to expect anything substantive coming from the meeting. Not much in the way of key economic readings this week; Monday the Nov ISM services sector index and weekly jobless claims on Friday are the only serious data points.

This morning Europe and US stock markets trading better; the US bond and mortgage markets weaker. At 9:00 the 10 yr -20/32 at 2.10% and mortgage prices -9/32 (.28 bp). News out of Europe continues to be indecisive with the summit meeting on Friday of Europe's leaders. Germany's Merkel is due to meet with French President Nicolas Sarkozy in Paris today to prepare for a Dec. 9 European summit. According to news early this morning the German government won’t stand in the way of Bundesbank help to fight the debt crisis by means of loans channeled through the International Monetary Fund. Starting the week there is increased optimism in markets that Europe will actually work out something positive to fend of defaults in Spain and Italy. Tim Geithner is in Europe cajoling leaders to come up with a plan quickly, hard to handicap his influence. If there is actually something of substance from the EU this week or over next weekend US interest rates will increase, no more safety moves into treasuries and the view that a plan in Europe will improve its and the US economic outlook.


Two economic reports at 10:00; Nov ISM services sector index expected at 53.4 frm 52.9 was weaker at 52.0; new orders component at 53.0 frm 52.4, employment at 48.9 frm 53.3 and prices pd at 62.5 frm 57.1. A little improvement in the bond market on the weaker data but not much; the stock market didn't react much to the report. The employment component fell under 50 indicating contraction. Also at 10:00 Oct factory orders, expected down 0.4% hit right on at -0.4%, Oct durable goods orders originally reported down 0.7% were revised to 0.05%.

Technically and fundamentally the US interest rate markets remain in narrow trading ranges; the 10 yr note still unable to hold under 2.00% but does find support anytime the yield climbs to 2.12% as it did last week. Mortgage rates and prices trading a even narrower ranges; the price on the 3.5 FNMA coupon has held in a 50 basis point price range now for almost a month. The week will continue to work off how equity markets, stock indexes higher---bond and mortgage prices lower. We remain skeptical that US interest rates will decline much frm these levels, the larger outlook is that rates will begin to slowly increase from present levels.