Headlines

New 13-month peaks early in the week and now . . .hesitation. Ninety minutes before the opening bell, S&P 500 futures are off 10 points to 1,098 and Dow futures are 66 points lower at 10,338. With equities taking a dip, other assets considered risky are following suit. WTI Crude is trading 70 cents lower at $78.88 per barrel and Spot Gold is $10.87 lower at $1134.63. As President Obama warns of accumulating too much debt, he is also tapping into unused portions of the TARP funds, sending mixed messages to the market. Meanwhile, investors are concerned about the US housing market, trade relations with China, and the broad decline of the US dollar....

It hasn't received as much air time these days, but the range trade and technical price levels are still very much in play. That has to do with the slightly less paradoxical directionality these days. Markets have tended to move in the direction suggested by data to a much greater extent than the summer months that saw the release of our hit single "Day Trader's Paradise..." Mortgages started off the day significantly weaker to tsy but rallied a lot harder into the noon hour. The highs of the day coincided with the upper limit of the trend channel we've been riding all week. After bouncing shortly thereafter at 101-27, weakness ensued through the close but never managing to bring prices below this AM's lows or yesterday's lows. In fact, we're only 2 ticks off Monday's lows... Meanwhile, you can see the highs grinding lower. MBS have been pretty stable in that regard as tsy's succumb to greater chopatility The white circles show the trend supporting lower yields, but presto chango with today's breakout and one man's ceiling is another man's floor. In other words, this is an INTERNAL TRENDLINE that may prove to be resistance for tsy's tomorrow. The one potential saving grace for this sort of reversal is the downward slope. There's no default technical suggestion that yields move higher from here, merely that the previous trend of lower yields is over (assuming the breakout stands confirmed by Friday). But in tsy futures...

The FN 4.0 is trading -0-04 at 99-09 yielding 4.084% and the FN 4.5 is bid -0-02 at 101-23 yielding 4.294%. The secondary market current coupon is 4.137%. The CC is +77/10yr TSY and +67/10yr swap. It has been a choppy day......

Rather than dismiss the trend of lower yields in tsy's as more likely to stop at 3.32, perhaps we should have focused our analysis on what yields might do on the upside! For now, however, both MBS and the 10yr movements are simple if not elegant examples of the technical levels we discussed this AM. You get resistance from the downtrend at the red circle and resistance at 101-27 at the white circle... Tsy's are worse off today... In fact, yields are approaching the unfriendly side of their trend... We watch, wait, and place bets on where the next bounce will be... I think we break upside support in 10yrs, but stay under 3.38+ support. Any takers? (just opinion, you're free to disagree) Any other bets? Oh yeah, and MBS'll probably have to follow suit to some extent meaning some lenders may reprice for the worse if things don't improve quickly. Especially if you're dealing with a lender that has a historical predisposition to pay attention to the yield curve in conjunction with MBS.

Reports from fellow mortgage professionals indicates that rates are unchanged from yesterday. This keeps the par 30 year conventional rate mortgage in the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking to access equity in your home, you should expect either higher closing costs or a higher interest rate. Is everybody that is closing in the next 30 days locked yet? ...

Despite MBS performing slightly better than tsy's at the moment, the general theme of the week has been to hold steady while tsy's rally. The 3 day chart of this week's price movements so far does an amazing job of conveying this. We have the constantly revisited internal trendline (also the weekly MEAN, also the weekly MEDIAN! Could it be important?) of 101-27. Looking at that perpetual search for the center in the context of generally bearish price movements on the week and the generally bullish movements in tsys, the picture rapidly comes into focus. But our friend Astro only need worry about MBS to whatever extent spreads continue to widen as the downward sloping trend channel is a product almost exclusively of that widening and not some broader weakness in bonds (as you'll see in the lower portion of the chart!). So what's up with that volume spike? Kinda hard to tell if it rose to CAUSE the drop in yield or in RESPONSE to it. Plus there looks to be another spike following shortly thereafter. Let's dust off the microscope... Like the chart says, volume spikes occurred INSIDE the lowest and highest yields. The is a good example of the range trade at work. Econ data catalyzed the movement, and assumptions about the range took over. Given that yesterday's low yield range centered on 3.32 as well it's HUGELY important technical significance in terms of being nearly a 5 month high in futures, the volume rose in RESPONSE to yields dropping. It gave...

While we anticipated housing starts and permits would fall in October, today's data was a big surprise to most market participants as economists were expecting housing starts to increase to 600,000 and permits to increase to a 580,000 annual rate....

In this week's release, which reports on loan application activity for the week ending November 13, 2009, new loan application fell 2.5%, even as the 30 year fixed-rate mortgage fell 0.7% to 4.83. The refinance index decreased 1.4% and the purchase index fell 4.7%. This is the sixth consecutive decline for the purchase index and is the lowest read since November 1997....

Primer on the dollar; Are you ready for 2010 volumes? Servicing transfer news from the Fed...

While the morning data served to bring out a bit of chopatility, 3.32% is still strong resistance and 3.37% is still strong support. Again...the data was an excuse to churn profits within the three day range. As would be expected, the price volatility exhibited by our directional guidance giver (benchmark rates) has spread into the mortgage market. It's been a choppy morning so far in terms of MBS prices. Unfortunately, the ups and downs are occurring in the RED for "rate sheet influential" MBS coupons. The FN 4.0 is currently -0-07 at 99-07 and the FN 4.5 is trading -0-05 at 101-20. ...

Sitting comfortably at 13-month highs, equities are beginning the day moving sideways ahead of data on inflation and the housing market. The Dow looks to open 21 points higher at 10,419 and the S&P 500 is 2.5 points up at 1,110. The dollar index index is down 0.50% to 75.0, 37 cents below Tuesday’s close. Its weakness continues to boost commodity prices as foreign investors find their prices attractive. Oil is once again past the $80 mark, while gold prices are trading at $1,147.40 per ounce, a new record high....

After a fairly diffuse smattering of diverse data over the past two days, Wednesday changes things up. Unless you ascribe any special importance to oil inventories, both of tomorrow's headline items hit right at 830am, preceded by the standard weekly MBA survey at 7am. As far as the double impact at 830, it's CPI and Housing starts... Both always fighters to be reckoned with... As far as double impact today, AQ did a great job covering the tradeflows and hopefully after this post, I will have done at least a serviceable job of highlighting some of the technical considerations. Sure we both crossed over a bit, but that didn't seem to make for as potent of a segue as the "double impact." The "stuff" that AQ discussed in the Open remained pertinent throughout the day and bears repeating: "buying beget more buying yesterday as short positions were forced to cover as rates prices rallied. While this added momentum to the price appreciations, it also added a layer or base of support. Because several short positions were forced to cover...they now can play the current market however they choose." Sort of a capitulation trade in reverse... (It's capitulation either way if you ask me... short positions are being abandoned and or surrendered). As far as how that held true throughout the day, take a look at a little more than a day of the 10yr yield... I was plotting my own level lines that looked informative on the day based on the curve itself...

We need to make the FHA an independent agency like the FDIC, where every authorized seller/servicer pays an insurance premium to be a “member” and the commissioner is given the tools to react quickly to a housing crisis based on what’s good for the country, without political partisanship. After all, FHA is an insurance fund, not a mortgage banking entity. Risk is the issue; Risk management is the key component to making FHA the correct point of government facilitation....

Attorney General Eric Holder today announced the formation of an interagency task force to investigate and prosecute financial fraud. The group will look at both past activities surrounding the recent mortgage and credit crises but will attempt to spot unfolding trends that could harm individuals and institutions....

As mortgage-backs make their way towards the exits, prices are holding near unchanged on the day. The FN 4.0 is +0-01 at 99-17 yielding 4.053% and the FN 4.5 is trading +0-00 at 101-28 yielding 4.271%. The secondary market current coupon is 4.108%. The CC yield is +78/10yr TSY and +69/10yr swap. Wider on the day. Sellers dominated today. Originators were selling loan supply this morning into the afternoon, an expected event given the currently rich dollar prices of production MBS coupons. Overall about $3 billion was sold by pipeline managers . Other than that, money managers and hedge funds were taking profits (selling!) while other traders reported selling from Asian central bankers....