Thursday, 3/18/10 4:09 PM

The bond and mortgage markets backed off today after 4 days of price improvements on the 10 yr and mortgages. Still the 10 yr is confined to its 12 basis point range between 32.58% and 3.70% where it has traded for the majority of time since late January. For al the chatter and all the economic and political news the long end of the curve remains relatively passive. The average rate for a 30-year fixed-rate mortgage rose slightly in the most recent week while shorter-term rates were mixed, according to Freddie Mac's primary market survey. For the week ending today the average 30-year rate ended the period at 4.96%, up slightly from 4.95% the previous week. A year ago the rate was 4.98%. The average 15-year rate was 4.33%, up from 4.32% the previous week but down from 4.61% a year ago.

Lenders originated $26.9B of Federal Housing Administration-backed single-family loans in January, a 10% decline from Dec, according to a new government report. Refinancings totaled $11.5B and comprised 40% of January originations. FHA originations per month have been ranging between $26B and $30B over the previous five months.

A new forecast from Fannie Mae implies that this year will result in just $1.32T in residential loans being funded this year. If Fannie's forecast becomes reality, that means loan volume will be down 31% this year compared to last year. Fannie's forecast is slightly more bearish than a recent one issued by the Mortgage Bankers Association that sees production coming in at $1.33T this year. Most likely the estimates are based n the widely held view that unemployment will remain high through most of the year; not so much on the level of interest rates. FHA is raising the insurance premium on FHA loans, almost doubling it; according to FHA that would reduce originations by 6.0%; David Stevens said that those that will not qualify would have a 30% delinquency rate.

The Home Loan Bank of San Francisco is suing to seek to push $19.1B of failing securities back into the hands of the companies that issued or underwrote them. The defendants include Bank of America Corp., JPMorgan Chase & Co. and several U.S. and foreign investment banks. Think we have seen the end to the sub prime mess caused by Wall Street and banks; not likely, let the suits begin and there is going to be a cascade of them to come. Still a mystery why suits are not raining down on Standard and Poor's and Moody's, the two enablers that allowed it to happen, and how about the SEC, the agency that couldn't find their butts with both hands. 

No data on the schedule tomorrow; it is triple witching day with expirations of options and futures contracts. On Sunday the health reform bill is set for a vote in the House; according to most watchers the Democrats have the votes to pass it. Equity markets are thinking that the passage will boost prices on some health care stocks with millions more getting insurance. Democrats using arcane parliamentary procedures (deemed to have passed) to ram the vote with just a simple majority. When passed in its present form, whether voters like it will be settled in Nov. Presently taxpayers are slightly against the plan, partly because until the last few days the details were treated like a State secret so confusing that many in Congress didn't really understand the details, and partly because voters are more understanding that the costs and so-called savings will not materialize as advertized. By a 222-203 vote, lawmakers headed off a Republican resolution that would have required a separate, recorded vote on the Senate’s health care plan. The Republicans were seeking to keep Democrats from using a parliamentary technique to avoid a direct vote on that bill.

PRICES @ 4:00 PM

10 yr note:                         99.20 -8/32 3.67% +3 BP

5 yr note:                           99.26 -7/32 2.41% +5 BP

2 Yr note:                           99.27 -2/32 0.95% +3 BP

30 yr bond:                        100.21 -7/32 4.58% +2 BP

Libor Rates:                       1 mo 0.239%; 3 mo 0.271%; 6 mo 0.407%; 1 yr 0.856%

30 yr FNMA 4.5 Apr:         101.00 -4/32 (.12 bp) (-4/32 (.12 bp) frm 9:30)

15 yr FNMA 4.0 Apr:         101.29 -4/32 (.12 bp) (-3/32 (.09 bp) frm 9:30)

30 yr GNMA 4.5 Apr:         101.19 -4/32 (.12 bp) (-4/32 (.12 bp) frm 9:30)

15 yr GNMA 4.0 Apr:         102.19 -3/32 (.09 bp) (-2/32 (.06 bp) frm 9:30)

Dollar/Yen:                        90.31 -0.04 yen

Dollar/Euro:                      $1.3615 -$0.0119 (dollar strong)

Gold Apr:                          $1126.50 +$2.30

Crude Oil Apr:                   $82.18 -$0.75

Goldman-Sachs

Commodity Index:             529.38 -2.82            

DJIA:                                10779.17 +45.50 

NASDAQ:                         2391.28 +2.19

S&P 500:                          1165.83 -0.38