Morning Report - 10 year still heavy

Vital Statistics:

	Last	Change	Percent
S&P Futures	1636.7	4.5	0.28%
Eurostoxx Index	2749.8	7.2	0.26%
Oil (WTI)	109.1	-1.0	-0.92%
LIBOR	0.261	0.001	0.27%
US Dollar Index (DXY)	81.96	0.532	0.65%
10 Year Govt Bond Yield	2.82%	0.05%
Current Coupon Ginnie Mae TBA	103.7	-0.1
Current Coupon Fannie Mae TBA	102.8	-0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.47

Markets are higher this morning after some initial jobless claims came in at 331k and the second estimate for 2Q GDP came in higher than expected. The initial pass at 2Q GDP was 2.2%, while this estimate was 2.5%. We will have a final revision next month.

Between the Syria situation and the emerging markets meltdown you would expect the 10 year to strengthen and it isn't happening. This speaks to the bearish sentiment surrounding the US bond market. Of course this could change if a big player gets in trouble with Indian exposure or we get into a shooting war in the Middle East and oil soars. But so far, the 10 year isn't rallying under circumstances where it should. Punch line: if you are floating, you are drawing an inside straight.

Something that I haven't dwelled on, but could become an issue - the debt ceiling fight. I don't see a government shutdown in the cards, but the WH wants a clean, no-strings-attached hike in the debt ceiling (which is a rare event and a pretty big demand) and the Republicans want to de-fund obamacare. So, expect a lot of posturing going into October, which is when the government needs to borrow more money. 

CoreLogic is reporting that there were 49,000 completed foreclosures in July, down 25% year-over-year. This is still elevated compared to pre-crisis levels, where a 21,000 pace was the norm. We are seeing the remaining shadow inventory concentrated in the judicial states, which explains why prices are rallying in the West and going nowhere in the Northeast.

FHFA is reporting that mortgage interest rates rose 45 basis points in July. These are based on lock data, which is somewhat stale, so the end of July data reflects locks made in mid-to-late June. During this time, the 10 year yield increased about 52 basis points, so it looks like spreads are compressing a bit. 

Is it going to be Summers or Yellen? That is the question many market participants are asking. Summers is rumored to be the favorite and is seen as more hawkish than Yellen. As we approach the end of the year, bond investors will probably do well to read the Washington Post as well as the Wall Street Journal. Expect the bond market to become a bit twitchy and begin to react to the latest headlines in this horse race.