Mortgage Rates



US interest rates remain in their tight trading ranges; the 10 yr note trades within a 4 basis point yield while mortgage prices are essentially unchanged now for over a month. Up and down with no real change ahead of the EU summit tomorrow. The summit isn't likely to satisfy; likely some kind of frame work that will fall apart or drag along for another six months; too many opinions among sovereign countries that differ from what Germany wants---Germany holds the key to any program that may keep regional banks from financial stress and add relief to the debt ladened countries. Some positive news however, Italian and Spanish bond rates have peeked recently and have declined somewhat. More on anticipation that something will actually be accomplished than relief that the debt crisis is over. If the summit tomorrow doesn't end with progress those rates will likely increase again.

The ECB lowered its rate by .25% to 1.00%; it was widely expected. No noticeable reaction in the markets; the second month in a row it lowered rates. The ECB is looking into lowering collateral criteria to get banks lending again rather than the central bank buying government bonds. The ECB's priority appears to be to save banks rather than saving the debt ridden countries although banks and sovereign debt cannot be separated.

At 8:30 weekly jobless claims were better than forecasts, claims fell 23K to 381K the lowest in nine months; continuing claims fell more that estimates to 3.583 mi frm 3.757 mil last week, the lowest continuing claims since Sept 2008. The initial reaction pressured the rate markets and pushed stock indexes higher, however it didn't last more that a few minutes. At 8:30 the 10 yr note yield jumped to 2.10%, by 8:50 back to 2.05% +1 bp frm yesterday's close; stock indexes reversed and were weaker at 9:00. MBS prices have been volatile; FNMA 3.5 coupon at one juncture up as much as 14/32 (.44 bp), Freddie's and GNMAs prices slightly weaker. Not sure why, but MBSs are trading in wide swings.



At 10:00 Oct wholesale inventories, not much of a mover, increased 1.6% on forecasts of +0.3%; sales were up 0.9% with a 1.16 month of inventory based on sales. making more but selling not matching growth in inventories.

Treasury is about to officially announce next week's auction details; $32B of 3 yr notes, $21b of 10 yr notes and $13B of 30 yr bonds, the same as the last few months is likely.

With tomorrow's EU summit meeting markets will likely end the session with little changes. Technically the bond and mortgage markets still hold slightly bullish biases; mostly throwing off neutral readings. The key 10 yr note is comfortable between 2.00% and 2.12%, lower interest rates will be hard to achieve with the US economy continuing to improve albeit at a slow pace. Most of the economic reports in the past month have exceeded estimates, however unemployment remains high and the housing sector still mired in declining prices will restrain growth to a snail's pace.