Private sector jobs led the way, adding 154K to post the strongest reading since April.  Manufacturing was on the other side of the ledger, shedding 7K from the payrolls.  Market reaction was close to our call.  Matter of fact, our hats off the JPMorgan for their call at plus 110K.  RBS and PrimeLending came in second but will try harder!

Currently, the 10 year note is off 5/32’s.  Mortgage backs are off 12/32’s on the low note rates but higher rates are only off 5/32’s.  Not bad considering the positive news.  Reason here is the Fed is still the elephant in the room, looking to buy treasuries in the belly of the curve (5’s through 10’s), supporting the market.  Stocks liked the news but soon gave up the trade (currently down 2 points on the big board) as the dollar gained strength.

We see the market and the economy in a transition phase.  One that will continue to hold steady and improve, ever so slightly as time goes on.  The Fed, and their magic checkbook will see to that.  This country needs to see jobs growth of at least 250K per month just to break even.  That will take time allowing Austin mortgage rates to stay low into yearend and beyond.

A few of you have asked, “what do you mean by a tail.”  At the final bell of the auction (12:00 cst), the screen will reflect the final yield or offered yield for that auction.  Bidders put in an orders which can range from a certain price to “when issued”, meaning they will take the final yield at the bell.  If all of the bids are at the final yield or below, everyone’s order gets filled at that price/yield.  We call that a “bullet” auction.  When that is not the case, the issuer (Treasury) will go to the next highest yield and award orders until the entire issue is sold.

So, today’s auction went to the masses at 3.127% with a small percentage being awarded at 3.177%, producing a .05 bps “tail”.  Hope this makes sense.  Overall, we’ll give this auction a B plus.  Speaking of B’s, the stock market has one in its bonnet, down over 100 points on the big board.  Reasons for the selling stem from worse than expected Durable Goods Orders (plus .3%) and Weekly Unemployment Claims (down 8K expected to be down 20K).

Greece is still in the news as its sovereign debt takes a pounding.  It didn’t help when ECB President Trichet said that each country must take care of itself and not expect the EU to bail them out.  So, so earnings are in part to blame as top line revenue growth is ok at best, leading to the conclusion that stocks may be in for a 10% to 20% correction.  Sure looks like it to me.

Currently, the 10 year note is off 7/32’s (yield 3.67%), mortgage backed securities off 3/32’s, and stocks off over 100 points.  As we mentioned yesterday, the chart points to a top in the making, evidenced by its failure to hold below the 3.65% yield mark.  We see the market in a consolidation phase, one that could push yields closer to 3.72%.  The best the market can hope for (short term) is to stabilize at current levels given all the uncertainty in stocks and global assets.  Good idea to stay defensive and see how the next day and a half play out.

Weekly Claims dropped 1K to 530K and Continuing Claims fell a staggering 148K to 5.797 million.  The number to focus on here is the Weekly Claims, still maintaining a 500K plus per week average layoff run rate.  This is 500,000 people per week losing their jobs.  Not the makings of a healthy consumer.  Wouldn’t it nice if the White House would move this to the front burner.  Instead we have the Treasury Secretary testifying on Capitol Hill, endorsing Barney Frank’s bill for “a strong framework for achieving a safer, more stable financial system.”  Trouble is they want to give the Treasury Secretary the power to approve or not to approve the Fed’s decisions on systemic risk.  Sounds a little too political for me.

All of the above has put a little volatility back into the market.  Currently, the 10 year note is down 20/32’s (yield 3.49%), MBS down 6/32’s, and stocks up 75 points on the big board.  Stocks will hold the key as to where Austin mortgage rates go next.  The current pattern (stocks) has been for sellers to lean on the market when it rallies (5 out of the last 7 days).  We will want to watch the late afternoon trade (from 2:00 to 3:00 cst) to see if they can hold today’s gains.  Failure to do so will improve mortgage pricing while a positive close, especially 50 points or more, will put additional pressure on our stuff.

Technically, the selling today has pushed hourly charts into new sell signals (bearish) yet daily time frames remain neutral.  Overall, the charts point to another ½ point of weakness on the 10 year note but will take a back seat to the stock market trade.  We also have 31 billion of 7 year notes on the auction block.  We’re expecting this to go off without a hitch.

I’d like to wish you a frightening day tomorrow and the best sugar high Halloween ever.

What they would like to do is communicate an upcoming transition period.  One that would produce a soft landing instead of going cold turkey.  With their focus on employment and inflation, it would seem that rates will remain low until the unemployment picture stabilizes and then starts to improve.  High oil prices and a falling dollars could throw a monkey wrench into the mix.  We would expect Gentle Ben or Fed Governor Kohn  to communicate this philosophy in the near future to settle the market’s ruffled feathers.

Existing Homes Sales completed the week’s data stream, jumping 9.4% to 5.57 million units.  The above expectation print was the best we’ve seen since July 2007.  Sales were up in every region of the country with the Wild West leading the pack (13.0%).  31% of the sales were directly linked to the 8K first time home buyers program.  Let’s hope the gang on Capitol Hill figures out a way to extend this into 2010.  Fast money players have been active in both bonds and stocks.  Currently, the 10 year note is down 14/32’s to yield 3.48%.  Mortgage backs have performed a little better as spreads have tightened but are still in the red, off 4/32’s.  Stocks are off as well, down 65 point on the Dow.  Even the blow out numbers by Mr. Softy could not help the cause.  I would like to call your attention to the daily 10 year note chart.  The two blue lines represent the 21 and 40 day moving averages.

As you can see, both have been violated as the market continues to trade in a lower high, lower low pattern.  Since the market peaked on Tuesday (yield 3.22%), the market has formed a bearish trend taking out a number of support levels.  Current yield levels (3.48% to 3.50%) are critical to the near term direction.  With supply coming next week (137 billion in auction paper), odds are good that support will fail to hold and a new target of at least 3.52% to 3.58% will be achieved.  On the glass half full side, the angle of decent of the down trend (line at the far right) is quiet steep and short term oversold.  This tells us that trading volume has been light with a higher percentage of fast money traders versus position trades.  Both are supportive of the market finding a bottom.  Trouble is, if the bearish trend continues, say above 3.58% on the note, there is nothing on this chart for support until we get to 116 15 (dark horizontal line).  That target would clip mortgage pricingif it comes to fruition.  The close today will provide us a better picture.

• Start of the FOMC meeting (2 day),
• FHFA Home Price Index up .3%,
• Richmond Fed Index unchanged at 14,
• and the FOMC statement of last month’s meeting due for release at 1:15 pm cst.

We also have treasury auctions this week in the form of 2’s, 5’s, and 7 year notes to the tune of 112 billion.  Auction demand should be good as foreign governments will buy due to our weak dollar and the fact they own so many of them.

Both stocks and bonds have a little green on the screen.  Stocks have a bear/bull tug of war going on as bulls try to crack through the S & P resistance at 1080 and bears continue to short the market, looking for a top at the same level.  Bonds, notes, and MBS seem to trade in their own little world, range bound with good support from a multitude of buyers.  Tomorrow’s FOMC policy statement could hold the key to a trending change, especially if the Fed hints that they will be taking accommodation out of the market (tightening/raising short term Austin mortgage rates). You will want to pay attention tomorrow at 1:15 pm cst.

Technically, the weakness overnight traded to the low end of the range before boot strapping itself up this morning.  We see the trade as continuing to be range bound, bracketed by 3.52% on the high yield side (10 year note) and 3.42% on the low side.  Any move outside of these parameters will move the market for at least 1 point and a good ½ point in Austin mortgage pricing. Month end supply (112 billion) and a spooky FOMC policy statement sideswipe tilt our bias.