Good Morning Good Morning. Rob Chrisman is cracking me up this week with his line up of corny pirate jokes . While simple, I can't get enough "ARRRRRRRs", humor is humor and if you work in the housing industry you need a good laugh every now and again. Ugh....

Is everyone enjoying added chopatility in the bond market? Loan pricing certainly traveled a long distance over the course of the last week.  What's funny is rebate is unchanged after all the commotion in between....

Looking back on the last few days, the investing landscape has shifted ever so slightly. The bond market is more neutral, position wise, as in less longs and a few more shorts after being skewed way toward the longs (10s @ 2.40). Interest rates are reacting more sensitively to price changes.  Some say this move is supported by data, at least data released in September, and semi-confirmed by stocks, which caught a bid and broke into the high side of the summer long range. But the BIG PICTURE outlook hasn't really evolved though. The road to recovery has yet to be paved, leaving investors without a long term strategic bias. Trading tactics still revolve around short term cycles. We live in a trader's world.

From that perspetive, perhaps it's safer to say investors sold bonds in a position squaring manner because too much of the market was long and therefore susceptible to a short term pain trade, which did play out. In the process of reallocating funds, stocks caught a bid. I suppose it can be easy to forget the mess we're in after a few decent economic headlines cross the wire. Like I said, we all need a reason to be happy every now and again. This perspective shines through the curtains (Oz) on Wall Street (Yellow Brick Road) from time to time too. Stocks need loving.  Meanwhile, bonds will continue to search for a comfortable trading range.

During this process we can expect to hear rumors, for example, Goldman says the Fed is considering another asset purchase program. Traders say they might do it as early as next week (ax grinding). Rumor or not, something has to motivate the bond market to take a directional bias. That something could be as simple as stocks losing their luster and selling off. Political events also carry the potential to shift the yield curve steeper or flatter. Of course unconventional monetary policy and FX interventions are on the rader as well. Oh and how could we forget economic data? The second half of the month is upon us already, that means housing data is on the schedule. You remember what happened at the end of August after two weeks of poor housing data right? 10s touched 2.40, the 2/10s curve flattened significantly, and 3.5 MBS coupons were being waved in, allowing lenders to offer mortgage rates below 4.25%.

Lots to consider. In the mean time, expect further chopatility. Expect ups and downs in loan pricing, at least until a clear bias is supplied by the bond market. Play the range. At the moment that range in 10s looks to be between 2.50% and 2.75% with possible tests of 2.40% and 2.85% again. For November FNCL 4.0, that range is wide, between 102-00 and 103-00. The closer we get to 102-00, the less often you will see 4.125% paying rebate.