Morning Report - Bonds rally as oil tanks

Vital Statistics

	Last	Change	Percent
S&P Futures	2056.8	-9.5	-0.46%
Eurostoxx Index	3234.5	-16.4	-0.51%
Oil (WTI)	66.32	0.2	0.26%
LIBOR	0.234	0.000	0.00%
US Dollar Index (DXY)	87.99	-0.369	-0.42%
10 Year Govt Bond Yield	2.16%	0.00%
Current Coupon Ginnie Mae TBA	105	0.3
Current Coupon Fannie Mae TBA	104.1	0.1
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are lower this morning on overseas weakness as the Chinese PMI came in weaker than expected. Bonds and MBS are flat.

The story of the last few days has been the precipitous decline in the price of oil, which is collapsing at a faster rate than it did in the 2008 crisis. The fracking boom in the US is playing a big role here, along with OPEC's decision to to maintain output. This is going to have major implications for the US economy and also foreign policy (mainly good).

Chart: WTI Crude 2007 - Present:

As oil falls, so do bond yields. Last week, the 10 year dropped 15 basis points to close out at 2.164%. There are lots of reasons to be skeptical of Friday's closing print - namely (a) low volume as many desks were staffed with skeleton crews and (b) end-of-month position squaring and window-dressing. That said, bonds are holding onto gains first thing this morning. LOs, if you had some borrowers that wanted to refi and missed their chance, wake them up. Due to the holidays, they probably don't know what has been happening in bonds..

Chart: 10 year bond yield. 

Note that while bond yields fell 15 basis points, mortgage rates fell by only 6 basis points or so. We saw this the last time yields fell quickly - mortgage rates didn't follow the move down all that much until it became obvious that the move wasn't a fluke. Note TBAs picked up about half a point last week. 

We have some important economic data this week, with the ISM, Construction Spending, and the Employment Situation Report. We will also get same store sales from the retailers, which should provide some insight into Black Friday. Retailers should benefit from the gift of low gas prices, however it looks like Black Friday was a disappointment this year. 

The WSJ is reporting that some of the bigger lenders (like Wells and SunTrust) are preparing to ease lending standards in response to the new R&W guidelines out of the GSEs.