Rate Update November 8, 2010

Mortgage rates are worse this morning.

With a relatively light economic calendar on tap for this week the interest rate markets will be focused on US Treasury auctions.  The US Treasury is set to auction $72 billion this week.  Click HERE to understand how government borrowing can impact mortgage rates.

The first leg will feature $32 billion in 3-year notes today, followed by $24 billion in 10-year notes tomorrow, and concluding with $16 billion in 30-year bonds Wednesday.  The 30-year bond auction should prove to be the most interesting.

86% of the Fed’s $600 billion QE2 initiative will go towards purchasing treasuries with maturities between 2.5-10 years.  Therefore, Tuesday’s & Wednesday’s auctions should go fairly well.  However, only 4% of QE2 will buy bonds with maturities 17-30 years.  Therefore, we could see weak demand for this auction which would threaten to push rates higher.

Historically, a better than expected jobs report, which we got Friday, pushes rates higher until the next report.  Mortgage-backed bonds are barely hanging on to important technical support.  As long as we are holding that line we should be fine but the safe play is to lock.

Current outlook: cautiously floating watching technical trading patterns