THE BASIS POINT

Rates down on Ireland bailout. A new crisis coming for mortgage industry.

Rates Open Down, Preview of Trading Week
During Friday’s short bond trading day, mortgage and Treasury bonds rise as investors sought safe havens from a euro zone debt crisis. 10-yr notes were 12/32 higher in price to yield 2.87%. 5-yr notes, probably a better proxy for MBS prices given the life of new-production mortgages, were better by about .125. Mortgages rose about 25 basis points. They’re also up 25bps this morning with news of a $113 billion bailout plan for Ireland, and this two-day mortgage bond price increase means rates are about .125% lower so far.

There is more geopolitical stress in Dubai, N/S Korea, Spain, and Portugal. In addition to the Ireland plan, European governments are crafting blueprints for future rescue efforts. The aid for Ireland, after a rescue for Greece earlier this year, is intended to show that the euro zone will help its members. That jury is still out but U.S. consumer mortgage rates benefit as mortgage bonds are still in high demand from banks, money managers and overseas investors. Below is the week’s economic calendar, and notes about a new bank crisis brewing.

The Fed is scheduled to buy about $39 billion in Treasuries this week after purchasing only $10 billion in a holiday abbreviated week. We have no economic news today, aside from the media chewing on shopping news. Tomorrow is the S&P/Case-Shiller set of housing price indices, Consumer Confidence, and the Chicago Purchasing Manager’s numbers. Wednesday we have the ADP private employment numbers, productivity and cost statistics, Construction Spending, ISM Manufacturing data, and the release of the Beige Book. Thursday we’ll see the usual Jobless Claims, and also Pending Home Sales, and on Friday the unemployment data.

Courts To Decide Which Banks Take Mortgage Losses
Last weekend Barron’s highlighted the latest crisis facing the mortgage industry: “The potential liability facing bankers arises from the $2 trillion in subprime, alt-A and option-adjustable rate mortgages that they underwrote and sold to investors, mostly as mortgage-backed securities during the home-lending boom of 2005 to 2007. The losses on the mortgages will be horrendous before the dust settles-over $700 billion on these and other so-called non-agency mortgage securities…”

Meanwhile, investors who bought mortgage backed securities are pushing for a resolution of the 50-state probe of foreclosure practices.