YOUR Mortgage Minute -- The Week That Was 11/16-11/20, 2009

Good Afternoon,

I hope that this note finds you well. Here is a recap of what has happened in the market over the past week. U.S. Treasuries did well last week, thanks to a big rally the previous Friday, some weaker-than-expected economic reports and a little safe-haven buying. The yield on the benchmark 10-year note held below 3.35% most of the week -- at least 10 basis points lower than the week before -- but ticked up slightly on Friday.

Retail sales for October kicked off a big week of reports, with sales jumping 1.4% thanks to strong demand for cars. Excluding autos, sales rose by only 0.2%. And an unexpectedly huge drop in the NY Empire State manufacturing index for November gave bonds a boost. It plunged to 23.51 from 34.57.

Fed chairman Ben Bernanke gave further support to bonds when he stated that "significant economic challenges remain," but he added that he saw moderate growth with subdued inflation
Tuesday's reports were also bond friendly, with the producer price index finding no signs of wholesale inflation. In fact, the core rate, which eliminates food and energy prices, fell 0.6%. In addition, industrial production in October slowed, rising only 0.1%. Capacity utilization edged up to 70.7% from 70.5% but missed expectations.

Wednesday's disappointing report on housing starts and building permits gave traders another reason to buy. Starts fell 10.6% to an annual rate of 529,000 units from 592,000, making October starts the worst since April. Building permits fell 4% to an annual rate of 575,000. The October consumer price index, or CPI, which checks for wholesale inflation, put some pressure on Treasuries. The CPI rose 0.3% when 0.2% was expected, and the core rate also exceeded estimates, rising 0.2%. But losses were offset by weak housing starts Thursday began with first-time jobless claims for the week ended Nov. 14 coming in flat at 505,000, while the four-week average hit its lowest level in almost a year. Continuing claims edged down to 5.611 million from 5.650 million.

The Philly Fed index on Mid-Atlantic manufacturing conditions for November jumped to 16.7, the fourth straight gain and its highest reading since June 2007. But the index of leading economic indicators, which looks at future economic conditions, rose only 0.3% when economists expected a 1% increase. Nevertheless, it's risen for seven consecutive months.

In spite of low mortgage rates, purchase applications fell for the sixth straight week, according to the Mortgage Bankers Association. Purchase apps were down 7.9% while refis dipped 1.4%.
This week will be short and wild with most of the eight-plus reports coming out Tuesday and Wednesday.

Monday's existing home sales for October is expected to show sales rising to an annual rate of 5.65 million units versus September's 5.57 million. This could spawn selling in Treasuries, but if Tuesday's preliminary revision on 3rd quarter GDP is true, they'll recapture losses. Revised 3.0% growth is expected -- significantly lower than the advance 3.5% increase. If the loss is greater, Treasuries will rally.

Tuesday also brings the November consumer confidence index, which can move markets. But a 47.5 reading versus 47.7 in October is expected. This would be a non-event, but if it comes in lower, buying in Treasuries probably will increase. A couple of home price indices are likely to show continuing price erosion.

On Wednesday initial claims could fall below 500,000 -- or not. Whenever they do, bonds won't take kindly to that. Separately, personal income and spending are both expected to rise for October. Income should be up 0.2% from 0.0% while spending is expected to increase 0.5% from 0.5%. But the core PCE, which is a key inflation gauge, should only rise 0.1% -- same as last month.

October durable goods orders should increase 0.5%; that's less than the previous month, but excluding transportation, they could rise 1.0% -- a tad more than the 0.9% in September. And October new home sales are predicted to increase to an annual rate of 414,000 from 402,000. The University of Michigan's final consumer sentiment survey for November can influence trading, but if it comes in on target, there will be little reaction. It's expected to rise to 66.5 from 66.0.

Reports that meet expectations generally don't rile the markets. It's when there's a big miss -- either up or down -- that gets buyers and sellers busy. I hope you have a fabulous week on this Thanksgiving Holiday Week. If there is ever anything that I can do for you, please let me know.