Morning Austin Mortgage Market Report – Major market sectors reversed short-term trends yesterday as Treasury prices rose and equity markets edged lower. The five-year note auction met very strong demand and yields for that portion of the curve declined 10bp. The Fed’s Beige Book suggested weak growth in most areas and actually showed slowing economic activity in some regions.

Yesterday’s early morning data included a 1% decline in durable goods orders and like the Fed report, suggested a sluggish economy. Somewhat encouraging housing data released earlier in the week supported the notion housing markets might be stabilizing, but careful review led most analysts to conclude seasonal factors, not expired tax credits, and other transient factors resulted in headline home price and sales figures appearing stronger than actual underlying trends. Foreclosure filing trends also suggest the housing market will continue to struggle as a report from RealtyTrac shows increased filings in 75% of the major metropolitan areas increased during the first half of this year with problems spreading into what had previously been some of the least affected areas. This morning’s weekly jobless claims report showed 457,000 first time claims for the week ending July 24th, an in-line-with-expectations decline of 11,000 from the prior week.

Buying today has taken prices through the 8-day moving average at 122-31 and the 62% retracement of the drop from the July high at 123-05.  The latter indicates that a full retracement of that rally is underway.  This move would take prices to the July high at 123-24.  Daily studies, however, are still a bit skeptical of the strength.  If we see a strong move above 123-24, hold on, we might be in for a ride to even lower Austin mortgage rates.

To wrap up this week’s coupon auctions, the Treasury will sell $29bln 7-year notes at high noon.  The auction is expected to follow others this week with a fairly positive result.  Stocks are taking it on the chin, currently down around 80 points.  10yr is up 3+, trading 2.99%.  Mtg backs are trading a bit unstable, currently reading anywhere from up 4s to up 6s.