New day, same story.  Doesn’t this feel like one of those cheap, B movies called “Europe gone Wild”?  The plot is nothing more than traders running around with a lack of confidence, hitting the panic button every chance they get.  Liquidity is another issue as the fear of bad debt is contagious.

The Koreans are not doing anyone any favors as the saber rattling between North and South starts to escalate.  For those who don’t know the story, North Korea sunk a South Korean military boat in March, killing 50 sailors.  To say the least they got a little ticked off.  South Korean banned imports and now North Korea puts their military on alert.  As if we didn’t have enough to worry about.  As a consequence of all the above, all markets across the pond took it on the chin, triggering another round of flight to quality buying in Uncle Sam’s paper.  Seems we are the IOU of choice.

Mortgage backs are green but only up 4/32’s as credit spreads continue to blow out in all fixed income products again their treasury counterpart.  What we mean by this is that the value of a mortgage backed security is not keeping pace with the lower yields produced on the 10 year.  Case in point is today’s trade.  10 year note up 17/32’s (yield 3.17%), MBS up 4/32’s.  The reason for the spread widening is that investors are being risk adverse to any product except the real thing, Uncle Sam’s Treasury paper.

Earlier today, S&P’s Case Shiller housing prices fell 3.2%.  However, the 10 city index rose 3.1% and the 20 city index rose 2.3%.  Not bad all things considered.  Consumer Confidence had a positive print as well, up 5.4 points to 63.3.  This is the third month in a row to post a gain.  Within the index, the labor market differential is this only sorry spot, down 39 points.  Hard to find a sustained recovery until we put people back to work.

FHFA Home prices were also released, down .3% in March and off 1.9% for the first quarter.  This index only measures home prices with Fannie and Freddie loans attached so we are not bringing Jumbo into the mix.  We do have a 2 year note auction (12:00 cst) which, given the chaos, should go off without a hitch.

This market is hard to handicap.  On one hand, Europe will not get out of the dog house anytime soon.  On the other hand, our economy is stable, maybe not growing very fast but stable.  We expect Austin mortgage rates to stay low into the foreseeable future with current levels being the top of the range (best levels we could see).  Pull backs, however, will be shallow until investor confidence returns on a global basis.  One good point of reference is the 10 year note now trading at 3.16%.  For any rally to develop (from this point forward), we will need to see a close below 3.09%.  Expect volatility to be extremely high for the balance of the week.  One more thing: don’t look at your 401K, it’s hazardous to your wallet.