The Shirmeyer Report's blog

Selling in treasuries yesterday was met with equivalent buying today taking the 10 yr back to Wednesday's close at 2.68%; mortgage prices however improved but didn't make up yesterday's price declines. Given the way price action has unfolded since the FOMC statement the decline in rates is mostly in treasuries; mortgages are taking the ride but dragging one foot. 

Selling in treasuries yesterday was met with equivalent buying today taking the 10 yr back to Wednesday's close at 2.68%; mortgage prices however improved but didn't make up yesterday's price declines. Given the way price action has unfolded since the FOMC statement the decline in rates is mostly in treasuries; mortgages are taking the ride but dragging one foot. 

Mortgage markets took a real hit yesterday on uncertainty over what politicians are doing to help underwater mortgagors. The government is adding another plan to lend money to those that are underwater but still are current. Treasury markets had become technically overbought after the sizeable decline in rates over the previous few days; yesterday the 10 yr rate increased 6 basis points on profit-taking as traders worked on overbought momentum oscillators. This morning the bond market started better with weaker equity market outlook, mortgage prices a little better but still look vulnerable in the short run but the longer look remains positive for mortgage rates.

Treasuries and mortgages backed off today after three strong rally days; we warned yesterday and again in this morning's report the bond market had become technically overbought and pressure would build to take profits. On Tuesday the bond and stock markets got a jolt when the FOMC statement said, in effect, that the US economy was not growing; to make an attempt (feeble at best) the Fed announced it would buy US Treasury debt with the principle pay downs on the $1.25T the Fed holds on its balance sheet. Feeble but it did impact markets, crashing stock indexes and rallying treasury markets; mortgage markets were dragged along but didn't get the bump down in rates as the 10 yr treasury did.

Treasuries and mortgages started a little weaker early this morning after very strong declines in rates over the last few days; mortgage rates however have lagged the decline in treasuries but still have improved. At 8:30 weekly jobless claims put a bid in treasuries and sent stock indexes lower; claims were widely expected to be down 12K to 14K but were again higher, up 2K to 484K. Last week's claims were revised up, from 479K to 482K. Continuing claims did decline, from 4.57 mil last week to 4.452 mil this week.  The continuing claims figure does not include those receiving extended benefits under federal programs. The number of Americans who’ve used up traditional benefits and are now collecting emergency and extended payments soared by 1.34 million to 5.28 million in the week ended July 24.

Yesterday the Fed sent a shocking message to the economic bulls when the Fed had to step back in and support markets by purchasing more treasuries. It had been widely thought that the next move for the Fed would be to get its balance sheet  down to the $1T level frm $2.5T it now holds on its balance sheet. With most of the recent economic data points weak (except for the manufacturing sector) the Fed is now fearful of an economic slide. In the statement the FOMC said it expected the economy to continue to improve at a modest, yet slower pace, that had been expected until a month ago. The fact the Fed is now driving long term rates lower is a move to drive down mortgage rates further in efforts to save more homes from foreclosure.