Treasuries and mortgages after three days of improvement are weaker this morning, volatility in US markets continues to be excessive; most of it is what isn't happening in Europe. Europe pushing on a string, there isn't enough capital in the region to come close to keeping the sovereign debt under control, there is going to be failures beginning with Greece. Greece in the EU is on borrowed time, in the end Greece will likely default and exit the EU. Next up n the line of problems, Italy and Spain. For all the summit meetings and all the press conferences there has been no real effective solution. Europe's banks can't take 50% haircuts on the bonds they hold from a number of EU countries, the IMF isn't likely to get too deep into the problem without bringing massive criticism from G-20 countries. China last week indicated it may be interested in EU debt but only if the bonds its purchases have a valid Guarantee from the EFSF and that hasn't happen. In the meantime what happens in Europe is unsettling all of the industrial world, sending mixed messages daily that produces wild and unexpected moves as was clearly evident yesterday and Monday.

Europe's bailout fund is delaying a 3 billion-euro ($4.1 billion) bond sale after Greek Prime Minister George Papandreou's request for a referendum on the rescue pact for his country roiled markets. An EFSF official said in a conference call with investors today that it may wait for the outcome of the Nov. 3-4 Group of 20 summit in Cannes, France before selling the bonds, according to a person with knowledge of the matter. On Friday there will be a confidence vote in the Greece Parliament, if he doesn't retain his majority he may be out of office by Saturday morning.

This morning at 8:15 the ADP October non-farm payrolls increased 110K a little better than estimates, Sept jobs were revised higher 25K more than reported last month to +116K. Treasuries and mortgages, already weaker didn't show any reaction to the better jobs. The stock indexes after falling 576 points yesterday and Monday on the DJIA are better this morning but not much.

At 12:30 this afternoon the FOMC policy statement will be released, likely markets will be relatively quiet until then. At 2:15 even more important than the policy statement, Bernanke will hold a press conference. What is Bernanke thinking about what isn't happening in Europe? Will he signal the possibility of more easing with a QE 3? Operation Twist didn't work, why? A lot of questions.

The driver for mortgage interest rates, the 10 yr treasury note, even after the strong improvement in the past couple of days, is still unable to hold under 2.00%. Every time the 10 falls below 2.00% it hasn't lasted more than a few days.

At 9:30 the DJIA opened +90, the 10 yr note -19/32 2.06% +6 bp and mortgage prices -8/32 (.25 bp).

Purchase applications for home mortgages rose for a second week, up 1.8% in the October 28 week on top of the 6.4% gain in the October 21 week to nearly reverse the prior week's 8.8% drop. The refinance index is down 0.2% in the latest week. Rates in the week were little changed with 30-year conforming loans ($417,500 or less) down two basis points to 4.31% and 30-year jumbo loans (greater than $417,500) up one basis point to 4.69%.

At 10:00 the bond and mortgage markets have come off their lows; mtgs -3/32 (.09 bp).