"Rate sheet influential" interest rates are indeed higher on this first day of February 2010. Range bound choppy price action and the influence of the stock lever can be pointed out as our objects of frustration.

Below is a recap of econ data.  ISM surprised to the upside with the prices paid index moving up to 70.0 from 61.5 last month. Inflation hawks will have something to say about that warming price level index. The other inflation indicator, PCE, was +2.1% on a year over year basis but only +0.1% on a month to month basis. The +2.1 year over year isnt all that scary when you compare today's economic environment to last December's "WORST CASE SCENARIO" panic. The prices paid portion of the ISM data is a bit concerning, then again NYMEX crude oil prices rose into the mid-$80 handle, so we can discount that data a bit. Still...the much better than expected ISM print  was enough reason for rates to sell. The construction spending number is really old news...we already knew builders have put plans on hold until the labor market stops contracting and starts expanding.

The market's reaction to 10AM data is clear: Treasury futures prices declined at a faster rate and stocks ticked higher. Even before 10am data, Treasury futures were losing steam...

The term chopatility, which we coined in the summer to describe random price volatility within a well defined range, comes to mind in today's environment. In the greater context of the BIG PICTURE, choppy markets are a function of  macroeconomic uncertainty and distorted perceptions of reality. This atmosphere leaves speculative traders in search of re-actionable news and events and can often times result in counter intuitive asset valuation price directionality . Specifically "buy the rumor, sell the news" or a "fade". Of course, the outer limits of the markets range are used as points of reconsideration and consolidation. These "pivot points" serve as targets with which we have come to rely upon for a sign of things to come...that and the market's profile (volume dispersion of a time period).

Just as I finished writing that...the range moderates at 3.68 and 10 yr yields are heading lower. On the bullish side, 3.57% is the outer limit of 10s with 3.62% a key pivot point. Once 10s break 3.62, traders test 3.65%. If 3.65% is broken you can expect "short covering" to provide a supportive bounce around 3.68%. A break of 3.68% and test of 3.71% would be a sign that rates traders are comfortable with the lower limits of the range at 3.57%. That should be your "LOCK AT THE HIGHS" target...meaning when 10s are testing 3.57% and still failing to move lower, you should be locking in loans. This would imply the FN 4.5 was trading over 101-00. Consider that your "overbought" area. Below that we have 100-28 and 100-24.

The FN 4.0 is currently -0-08 at 97-25  yielding 4.214%. The FN 4.5 is -0-06 at 100-27 yielding 4.428%. The secondary market current coupon is 4.396%. The CC yield is +74/10year TSY yield and +61/10yr swap rate. After gapping out late last week, "rate sheet influential" yield spreads are tighter this AM.  Lock 'em up when the FN 4.5 is over 100-28...100-20 is our "the range is breaking down for the worse" target.

I think there may some confused perspectives out there regarding the direction we believe mortgage rates are heading. During recaps of the econ calendar, I have made a point to highlight broad structural macroeconomic weaknesses that we are facing as a country, specifically in housing. Nothing has changed there, my economic outlook continues to be one of stagnate growth and high unemployment. While I enjoy playing the day over day lock/float game, my overall bias remains on hold in the LOCK position. This means, while we are range bound,  that overnight floating isn't a complete no go, but you should still be looking to lock in around our floor targets. The recent "relief rally" has consistently told us that a new range has been formed...with 3.57 being the floor in 10s and 4.75% in mortgage rates. See bearish targets above...