Market Snapshot

Choppy, with no direction in the bond and mortgage markets. Both trading in a wide range and awaiting the FOMC meeting on Nov 2 and 3 and the elections on Nov 2. Yesterday a strong rally in the bond market and heavy selling in the equity markets on the news China increased its base rate by 25 basis points and in turn the US dollar spiked higher. A strong dollar is not what the equity markets want, nor does the Fed want the dollar to increase. There is an increasing belief that a weaker dollar will be the catalyst that lifts the economy out of its slump by improving the US export markets.


Yesterday mortgage prices improved by .31 bp while the 10 yr note yield fell 4 basis points to 2.47%. This morning the 10 yr note yield is up 3 basis points while mortgage prices at 9:30 were down .18 bp. Yesterday the dollar rallied sending stock indexes down (DJIA -165) this morning the DJIA opened up 22 pints, the 10 yr at 9:30 -7/32 at 2.51% +3 bp and mortgage prices -.18 bp from yesterday's close. The bellwether 10 yr note is continuing to trade close to 2.50% with moves rotating around it but no momentum to move much ahead of the QE 2 easing that is widely expected at the next FOMC meeting.


US interest rates at the long end of the curve that also includes mortgage rates are moving into what may be one of those Catch 22s. The Fed will likely be buying huge amounts of treasuries to push rates lower, but the Fed is on record that one of its targets by doing another QE is to get inflation moving higher in order to avoid deflation. Any increase in inflation is necessary in this environment but any increase, or perceived increase, is not supportive to continued lower rates at the long end of the curve or mortgages.


The MBA released its Weekly Mortgage Applications Survey for the week ending October 15, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 10.5% on a seasonally adjusted basis from one week earlier. This week’s results do not include an adjustment for the Columbus Day holiday. The Refinance Index decreased 11.2% from the previous week after increasing 21% the previous week. The seasonally adjusted Purchase Index decreased 6.7% from one week earlier. The unadjusted Purchase Index was 29.4% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 0.4%. The four week moving average is down 1.1% for the seasonally adjusted Purchase Index, while this average is up 0.7% for the Refinance Index. The refinance share of mortgage activity decreased to 82.4% of total applications from 83.1% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.8% from 5.4% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.34% from 4.21%, with points decreasing to 0.81 from 1.02 (including the origination fee) for 80% loans.This is the first increase in the 30-year contract rate in six weeks. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.74% from 3.62%, with points decreasing to 1.00 from 1.06 (including the origination fee) for 80% loans. This is the first increase in the 15-year contract rate in six weeks.


Nothing on the economic calendar this morning; at 2:00 the Fed will release the minutes of the 9/21 FOMC meeting. The focus will be on the debate over another QE that the short statement after the meeting indicated the Fed was "prepared" to undertake. That statement has led to almost 100% belief the Fed will re-start buying US treasuries.