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Treasuries and mortgages started a little weaker early this morning after very strong declines in rates over the last few days; mortgage rates however have lagged the decline in treasuries but still have improved. At 8:30 weekly jobless claims put a bid in treasuries and sent stock indexes lower; claims were widely expected to be down 12K to 14K but were again higher, up 2K to 484K. Last week's claims were revised up, from 479K to 482K. Continuing claims did decline, from 4.57 mil last week to 4.452 mil this week. The continuing claims figure does not include those receiving extended benefits under federal programs. The number of Americans who've used up traditional benefits and are now collecting emergency and extended payments soared by 1.34 million to 5.28 million in the week ended July 24. That was the week legislation resuming eligibility went into effect. Weekly claims are now at a five month high and add more credibility to the view the US economy is not improving. Prior to the 8:30 release the DJIA index was down 5 points, at 9:00 the DJIA was off 78 points.

Side bar; July import prices increased 0.2% while export prices declined 0.2%. Prices are not much of an issue with all attention now on the reality that the US economy is actually declining. The import price index is the first of three monthly price gauges from the Labor Department. The department is scheduled to release the consumer price index tomorrow and the producer-price index on Aug. 17. Economists surveyed forecast a 0.2% gain in consumer prices, which would be the first increase since March.

Mortgage rates are getting a little better but are lagging the rally in the Treasury rates. The over-riding concern of investors now is total safety; although we see safety and higher returns in the MBS markets, investors are shying away from MBSs in favor of treasuries. This morning is reflective of that; at 9:15 for example the 10 yr note yield was unchanged from yesterday's close while mortgage prices were down .12 bp frm yesterday's close.

Unemployed homeowners in areas hard hit by the economic downturn may be eligible for zero-interest loans to make their mortgage payment for up to two years under a new foreclosure prevention program HUD will roll out in the weeks ahead. The Obama administration is giving the Department of Housing and Urban Development $1 billion to start the program, which is designed to help mortgagors who have suffered what the government calls a "substantial reduction" in income due to job loss, underemployment, or a medical condition. These interest-free loans are capped at $50,000 and recipients must have demonstrated a good payment history prior to their loss of income. The Treasury Department also is providing $2 billion of additional funding for its "Hardest Hit Housing Market" program to help unemployed homeowners in 17 states and the District of Columbia. (Nat'l Mtg News)

This afternoon at 1:00 Treasury will complete this week's borrowing with $16B of 30 yr bonds on tap. The 10 yesterday and the 3 yr note Tuesday saw solid bids and we expect the 30 yr today will be the same.

After resisting as long as possible, markets are turning increasingly bearish on the economic outlook. For months pundits and financial media were willing to do the ostrich thing and ignore the unfolding reality that data was clearly demonstrating, that consumers were not spending and the housing markets were not recovering. The excuse for ignoring the fact that without consumers the economy would not improve was based on the improvements in earnings of companies and the belief we could have a recovery without increased consumer consumption has been dashed on the rocks. That however isn't deterring the bulls that are out this morning painting the earnings picture as the reason the economy will continue to improve. What bulls are saying is that although growth estimates have been lowered, it is still a buying opportunity in equities. Every bullish forecast from almost every pundit has fallen short this year but that hasn't phased those that have to sell stocks from continuing to preach the message. The DJIA opened this morning -100 points, but by 10:00 a slight improvement.

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