August ISM Non-manufacturing Index rounded out this week’s data, disappointing the economic bulls as it fell to 51.1.  Market reaction to all of the above was fast and furious with bonds, notes, and mortgage backs all taking it on the chin.  Stock futures rallied 10 points on the news.  Since then, the dust has settled.  Currently, the 10 year note is off 21/32’s, mortgage backs off 14/32’s and 10/32’s, and stocks are plus 55 on the big board.  Valuations seem about right as both bonds and stocks have come off their extremes.

I believe what you are seeing is a shift in market sentiment, one that will make stock traders feel better about taking on equity risk (buying stocks) while bond traders are feeling as if it’s time to lighten up fixed income ownership (selling bonds, notes, and mortgage backs) as risk premium is taken out of the market.  For Austin mortgage borrowers, this means we should see steady to higher interest rates going forward with intermittent rallies on bad economic data.

We’re not looking for a major shift in pricing or a new, long term bearish trend developing as the economy may be holding its own but still is weak.  Remember, we LOST 54K jobs.  That is not the making of a robust economy but it is better than we expected.  Technically, the chart fits our fundamental bias.  Daily trend signals will turn bearish after today’s close.  Divergences are all over the chart, most of which have now turned neutral to bearish.  What most likely will occur is the creation of a new trading range.  One with 2.75% as support and 2.50% as resistance (10 year note).  Chopping trading and mortgage pricing could be with us into the 4^th quarter given the good news/bad news we will see within economic data releases.

This is a time for Austin mortgage borrowers to be careful.  Take advantage of any rally the market gives you and get on the bus before it leaves the station.  Glad to see that the Carolinas didn’t fall into the ocean last night.  Take care on the east coast.

Tomorrow will be “the day” as the monster Employment Report for August will be released (7:30 am cst).  Not only is it the highest profile report of the month, but given the mixed economic data and volatile trading of late, everyone will be focused like a laser on this one.  I would not be surprised to see a 250 to 300 point swing on the Dow tomorrow.  Trouble is, which way?  Tactical bias points to soft numbers, something in the neighborhood of minus 100K jobs and the unemployment rate to print 9.7%.

Today’s trade is a continuation of yesterday’s selling, albeit at a slower pace.  10 year note off 11/32’s, mortgage backs off 11/32’s in low note rate conventional, and stocks up a few points on the day.  Expect the day to be one of “squaring up” for traders in both bonds and stocks, with not much movement seen from current levels.  Best bet for Austin mortgage borrowers is to lock in their interest rate.  It just makes cents (and dollars too).

Currently, the 10 year note is down 37/32’s, the 30 year bond is off nearly 3 points, and mortgage backs (lower note rates) are off 22/32’s.  Stocks love the news, up 243 points on the Dow.  One report doesn’t turn the trend but at the same time, we have been warning about topping action and poor risk reward in gambling with this market.  Time for Austin mortgage borrowers to get a little defensive, looking to Friday’s employment report for a little more economic clarity.  Be careful out there.

There will come a day, one when a report comes out of the blue with good economic news.  That will be when the market turns.  That day is not today.  With yields at or approaching historic yields, Austin mortgage borrowers are advised to lock their interest rates with our float down feature.  Doing so has treated Austin mortgage borrowers very well the past few months.

Real money and hedge funds have stepped aside, allowing the market to trade one way.  With that element of support taken away and stocks continuing to shrug off the Intel news (negative on Q4 revenue), we (our Austin mortgage rates/pricing) are caught in a nasty crossfire.  For today, when stocks go tick, bonds go tock.  Dangerous price action so be careful Austin mortgage borrowers!  As we speak, the 10 year note is off 40/32’s and 30 year bond down nearly 3 points.

Then came Ben, giving a speech at the Kansas Fed meeting in Jackson Hole Wyoming.  Stock traders were looking for a policy statement change.  Don’t know why as it wasn’t the right place or time.  What they got was a 17 page speech of old news.  Statements about battling deflation, low mortgage interest rates for and extended period of time, and using every tool if the economy deteriorates further is all they got.  Consequence, stocks tank and bonds rally.

Trouble with that market move is that it didn’t last long.  Once again, value buyers emerged in stocks, taking the Dow up over 100 points as we speak.  Treasuries and mortgage backs have taken a turn for the nurse, down 31/32’s on the 10 year note while current coupon MBS are off 12 to 16/32’s.  Whether this is mortgage bankers unloading August originations or just fixed income traders taking profits, no one knows.  We do know that and end of day close at higher yields (current pricing) will neutralize all bullish trend intensity signals on all time frames (60 minutes through Weekly).

We see this as an early warning sign that risk reward is not in your favor, Austin mortgage borrowers.  Overall sentiment and economic fundamentals will continue to support a low interest rate environment but not without corrections and volatile conditions.  Technically, the price action looks like a topping formation so be very careful out there.  Use the live dog instead of the dead lion school of deciding when to lock in your Austin mortgage rate.  It makes for a better night’s sleep!

One thing that is of concern is that the auction was not a blow out, instead something close to average.  Given the disastrous Durable Goods and Housing data this morning, many expected a buying frenzy for the issue.  Matter of fact, the 10 year note has now given up all of today’s gains, currently unchanged on the day.  Mortgage backs, which had brief spikes to plus 10/32’s, are now up 5/32’s.  Caution is advised due to a possible worsening price change.

I think what you’re seeing here is a market that has priced in something just short of the abyss.  That said, the gains on bad news are short lived and/or not nearly as potent as they have been.  This is a sign that the market is topping out.  Not advocating a new trend change to higher Austin mortgage rates, just a hold-steady type of market.  When this kind of environment is at hand, Austin mortgage borrowers are advised to lock their Austin mortgage rates and get out of the way as the risk reward is not in your favor.  More in a few.

Overall, we see continued low Austin interest rates on mortgages and historically low yields on treasuries well into the 4^th quarter.  The market is however forming a huge bond bubble that will someday create a massive correction.  That day is not today or tomorrow.

Technically, the rally from yesterday’s lows will add support towards further advancement (better pricing).  Stability at the 8 day moving average is supportive as well.  Oscillators are telling a different story.  One that reflects a lack of conviction to the bullish case.  In other words, the bull is due a nap.

Call the market at value, not expecting much movement either way.   Maybe early 2011 we’ll see the economic winds change direction.  We’ll wrap this up as the ice cubes marinate later today.

Some blame this on a large hedge fund liquidation (2 billion) that swapped MBS for treasuries.  Others comment on 3 billion of new origination paper that hit the street today.  Part of the whip lash seems to be coming from traders reading the tea leaves of the Housing Summit.  Comments by Bill Gross that Pimco wouldn’t buy a mortgage security unless the government backed it or if they did, they would require a minimum of 30% down payment.  Other comments range from having FNMA/FHLMC reduce all current mortgages to 4.0% as a stimulus measure for the economy.  How would you like to be invested in a few billion of 4.50% or 5.0% paper and take a hair cut to 4.0%?  Talk is also cheap about what to do with FNMA and FHLMC.

Moving towards a private structure has been estimated to increase rates by 300 bps.  Once again, what would you do if you had a few billion of MBS paper?  At the market one day, 300 bps in the hole the next.  Obviously, most of this is lunacy but just the same, its scaring the H E double hockey sticks out of the investment community. Markets hate uncertainty.  That’s why they run for cover.  Best to grab a flack jacket until some sort of sanity returns.