Treasuries yesterday were slightly better while MBS prices crumbled. This morning treasuries are weaker in price and mortgage prices down again. At 8:30 Oct producer price index was expected to increase 0.2%, as reported overall PPI declined 0.2% and the core (ex food and energy) also down 0.2%, the first decline on the core since Nov 2010. Sept PPI was up 1.1%, the decline of the overall PPI was the first in five months. Inflation isn't an issue these days and didn't generate any attention in markets. Yr/yr PPI up 2.3% overall and +2.1% yr/yr on the core rate. The decline in the PPI led by declines in energy prices. Also at 8:30 Oct retail sales, expected -0.2%, declined 0.3%; ex auto sales retail was unchanged; also no initial reaction to the report. It was the first time in four months that sales declined. Sept sales were revised from +1.1% to +1.3%. At 9:00 this morning the 10 yr note yield was 1.62% +2 bp; 30 yr MBS price down 18 bp frm yesterday's decline of 47 bp. Stock indexes at 9:00 had fallen back from +55 on the DJIA earlier to +23. At 9:30 the DJIA opened +35, NASDAQ +15, S&P +5; 10 yr note 1.63% +4 bp and 30 yr MBSs -15 bp. It didn't take long however, to push the indexes down; at 9:45 the DJIA was already back to unchanged.

Mortgage applications increased 12.6% from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending November 9, 2012. The Refinance Index increased 13% from the previous week, ending a five-week decline. The seasonally adjusted Purchase Index increased 11% from one week earlier. The unadjusted Purchase Index increased 8% compared with the previous week and was 22% higher than the same week one year ago. The refinance share of mortgage activity increased to 81% of total applications from 80% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.52% from 3.61%, with points decreasing to 0.41 from 0.45 (including the origination fee) for 80% loans. This record low rate for 30 year fixed mortgages beats the previous survey low of 3.53% for the week ending September 28, 2012. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.83% from 3.88%, with points increasing to 0.41 from 0.36 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34% from 3.37%, with points increasing to 0.78 from 0.75 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.88% from 2.95%, with points decreasing to 0.37 from 0.40 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.61%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans.

Based on the MBA applications data for last week, 30 yr mortgage rates did hit an all-time low, something we didn't expect as the bellwether 10 yr note is still 20 basis points higher in yield than its low back in July. The Fed buying $40B a month of MBSs having a positive impact on mortgage rates.

President Obama is now asking for increased revenues of $1.6T over the next 10 yrs; double what he wanted in the summer of 2011. Today the President is meeting with business leaders for their input. Yesterday he met with union leaders and continued to pledge he will seek more taxes from the so-called wealthy. Republican leaders are willing to accept new tax revenues but not higher taxes. Increased capital gains rates and other loop holes that mostly affect wealthy investors are the likely outcome.

At 10:00 Sept business inventories, expected +0.6%, were up 0.7%. No reaction to the better inventories; last Friday Sept wholesale inventories were also stronger than expected. Increased inventories should have a positive impact on Q3 GDP when the preliminary report is out on 11/29.

Later this afternoon (2:00) the FOMC minutes frm the 10/24 FOMC meeting will be released. The overall tone of the FOMC members on further easing moves will be examined within the context of the minutes. The Fed isn't likely to end easing as long as unemployment remains high; Bernanke is on record to keep rates low as long as the employment situation continues struggle. More easing on the way? Possibly but unlikely until next year and pending how the fiscal cliff is avoided.

From the technical perspective everything continues to look bullish for interest rates; traders are focusing on 1.60% for the 10 yr note as a key pivot. So far the 10 has experienced resistance at that level, unable to sustain below 1.60%. A move that holds below 1.60% could drive the rate to its lows last July. That said, we continue to believe the 10 yr won't likely decline to 1.40%. Nevertheless the rate markets are holding a very positive bias and fighting the tape is a mistake.