At 8:30 the treasury and mortgage markets continued yesterday's strong rally. The 10 yr note at 8:30 up 6/32 and mortgage prices up 7/32. Q2 productivity was much stronger than expected, +6.4% while unit labor costs were down a huge 5.8%. The stock indexes at 8:30 were trading weaker; the DJIA -18 and NASDAQ and S&P both down 3 points. The stock market is soft and that is propelling the rate markets to better levels, even in the face of today's $37B 3 yr note auction.

The WSJ today has a very scathing article on Ginnie Mae and FHA, calling FHA another $1T sub prime lender; warning that Ginnie does not have enough money in the kitty to cover what the article implies is another accident waiting to happen. Low FHA down payments, increasing delinquency rates, high loan amounts and fears of "fraudsters" getting in the FHA game. An article getting a lot of attention this morning.