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This week; after a week with little new economic data, this week’s calendar has a number of key reports beginning Monday with March retail sales and the NY Empire State manufacturing index. The benchmark 10 yr note ended last week at 1.99% an improvement of 6 basis points in rates on the week. Europe’s debt crisis resurrected a week ago increasing safety moves into treasuries and global economic conditions are slowing somewhat; the two factors driving rates back down. Mortgage interest rates on 30s were down about 5 basis points last week. With the current view that Europe and China are slowing, and the US although growing is also slowing based on the data on employment over the last two weeks.
The 10 yr note at 2.00% has the potential to fall to 1.90% but at this point we don’t think it will go much lower than that. Mortgage rates are within 10 basis points of their best levels. Europe’s debt issues, a present view that global economies will slow has increased the belief the Fed will likely do more easing; it all depends on the data we see this week. Next week the FOMC will meet on Tuesday and Wednesday with the policy statement that is expected to confirm the Fed is thinking about easing. The previous meeting’s policy statement disappointed as there was no mention that the Fed was thinking an easing move.
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US interest rates better this morning with US stock markets opening lower on reports out of China show its economy is slowing more than thought. China’s GDP rose 8.1% in the first quarter from a year earlier following an 8.9% increase in the fourth quarter, the National Bureau of Statistics in Beijing said today; that was less than the 8.4% growth predicted. China’s economy slowing as exports decline to Europe and the US, and the latest data shows imports are also slowing.
Europe’s debt problems are back as we noted previously; average net borrowings by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said. Lenders in the whole euro system took 361.7 billion euros, the data showed. Spanish government bonds headed for a second weekly decline, a sign the respite in the region’s debt crisis created by the ECB’s three-year loan program may be coming to an end. Seventeen of 22 economists surveyed this week predicted the ECB will be forced to resume its so-called Securities Markets Program to contain bond yields. In Italy protests by labor unions against the austerity plans being implemented. Prime Minister Monti’s pension plan was part of a $26 billion austerity package passed in January to fight the sovereign crisis by putting Italy’s debt, the second highest in Europe after Greece, on a downward trajectory from next year.
With slowing in global economic growth comes an increasing belief the US Fed will institute another QE soon. Europe’s debt crisis is adding support to lower interest rates. The recent swift decline in rates after the 10 yr spiked to 2.40% may be already discounting another easing action. This morning the stock indexes are lower after a two days of improvement, the 10 yr note hit 2.00% this morning.
At 8:30 March consumer price index was right on estimates; the overall CPI increased 0.3% frm Feb, yr/yr up 2.7%. The core rates (ex food and energy) up 0.2%, yr/yr +2.3%. There was no immediate reaction to the report.
At 9:30 the DJIA opened down 41 points, the 10 yr note at 2.01% -4 bp and mortgage prices up 6/32 (.18 bp).
The last data this week, at 9:55 the U.of Michigan/Reuters consumer sentiment index was expected unchanged at 76.2, it fell to 75.7, the current conditions index at 80.6 frm 86.0, expectations at 72.5 frm 69.8 and the 12 month outlook at 87 frm 79. The stock market worsened further and the bond market gained a little with the 10 yr at 2.00% and MBS prices .06 bp better than at 9:30.
Federal Reserve Chairman Ben Bernanke will speaking to the Russell Sage Foundation and The Century Foundation on “Rethinking Finance” at 1:00 this afternoon and will take questions from the audience. More than likely he will field questions on what the fed may be prepared to do, and questions on his outlook on the US economy and the Fed’s course of keeping the FF rate at zero to +0.25% for the next two and a half years.
Two readings on employment recently, the March employment report and yesterday’s weekly jobless claims, both added concern about the status of the economy. Tie that to the renewed fears of debt problems and economic decline in Europe and slower growth in China and we have a momentary perfect storm for lower interest rates. But how much lower will longer term rates fall is the ultimate question. The 10 yr note is just 10 basis points higher now than where it has encountered major resistance at 1.90%; although the rate did fall below 1.90% a few times but each time it couldn’t be sustained (only fifteen days since last September). The majority of trading on the 10 yr note since the beginning of last Sept has been between 2.10% and 1.90%.
This week had very little key economic data, only weekly jobless claims. Next week there are a number of key measurements; March retail sales, Apr Empire State manufacturing and the Apr Philly Fed business index, March housing starts and permits and March existing home sales March industrial production and factory usage— a lot of data that pending the results may either encourage more QE talk or dampen it. The next FOMC meeting on Tuesday the 24th and Wednesday the 25th.
Putting it in perspective; this week the 10 yr note has been tied to a 7 bp range; mortgage prices so far this week have traded in an 8/32 (.25 bp) range (103.14 to 103.06). For all the angst and talk the rate markets were essentially flat this week , at least through 10:00 this morning.
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It has been a bumpy ride in mortgage land the past week or so. To all the nurses that have bandaged the banged up mortgage professionals as we have scraped through pricing increasing to its highest levels in 8 to 10 months and the 14,000 calls from consumers who did not seek great advice from their former mortgage professional, we thank you. Without great nurses the world would be a very sad place…So to my fellow mortgage professionals remember to kiss your favorite nurse or at least say thank you as they make our jobs easier when our markets are volatile and we get banged around like a kid on a roller coaster who is not strapped in.
And to the mortgage consumer if you don’t want to feel like a kid on a roller coaster who is not buckled in, always seek the help of your local and learned mortgage professional for all your mortgage needs.
Now onto some mortgage news:
More improvement this morning in the US bond and mortgage markets. The bellwether 10 yr note at 9:00 moved under 2.25%, MBS prices were +6/32 (.18 bp). US stock indexes trading weaker this morning on global equity market declines. Global equities are headed for their biggest weekly decline this year as reports showed manufacturing contracted in Europe and China. The S&P 500 is poised for its biggest weekly decline since Dec. 16. The yield on the 10-year note is headed for its first five-day drop in three weeks as a leading index for China rose at a slower pace in February. A leading index for China gained 0.8% last month to 227.2, the Conference Board said in a statement today in Beijing, citing a preliminary reading. That compares with a 1.5% gain in January that was revised down from 1.6%.
St. Louis Fed Pres. Bullard in Hong Kong today sending up a warning flag on the prospects of increased inflation levels saying the U.S. and world economies risk elevated inflation that persists for years if developed nations mistime their exits from easy monetary policies. “Once inflation gets out of control, it takes a long, long time to fix it,” Bullard said in a Bloomberg Television interview in Hong Kong. “Ultra-easy” policies across the Group of Seven nations, which include the U.S. and Germany, may be retained for too long, he said.
Spain’s bonds fell for a 10th day as data this week showing European manufacturing shrank sapped demand for higher-yielding assets. Greek bonds fell on the last day investors can participate in the nation’s debt swap. German bunds outperformed treasuries this week, with the spread between their 10-year yields widening to the most in a year. Germany’s 10 yr bund is at 1.87% while the US 10 yr is trading at 2.25% so far this morning.
At 9:30 the DJIA opened unchanged after trading lower early today. The 10 yr at 9:30 +12/32 to 2.24% -4 bp frm yesterday’s close; mortgage prices +7/32 (.22 bp) frm yesterday’s close. Yesterday afternoon the US bond and mortgage markets saw some selling after the 10 yr failed to push under 2.25%; frm 9:30 yesterday to 9:30 this morning 30 yr MBS prices were -3/32 (.09 bp).
At 10:00 a few minutes ago Feb new home sales were expected to be up 0.7% frm January with some looking for even more improvement. As reported sales fell 1.6% to 313K units, estimates were for 325K (ann). January sales originally reported -0.9% were revised to -5.4%. Based on Feb sales there is a 5.8 month supply compared to 5.7 months in January. The median sales prices $233,700.00, up 6.2% frm Feb. 2011. The softer sales added more improvement in the bond and mortgage markets and pushed stock indexes a little lower.
Last week’s spike higher in rates caused by the disappointment in the FOMC policy statement that the Fed was not seriously considering another QE move at the moment and that the US economy was improving at a pace that the Fed didn’t expect at its January FOMC meeting. This week interest rates have rebounded on weakness in China’s economic outlook; still growth of 8.0% but down frm 11%+; Europe’s economic outlook has softened and in the US our stock market had become technically very overbought. Even the most bullish had been warning of a potential pullback in equity prices.
From a purely technical perspective after the run-up in rates last week we expected this rebound; the market moved too rapidly in too short of time. This week the bond market has been supported fundamentally by news that global economies may be slowing a little. The market is also being supported by weaker than expected housing reports this week. Technically the short term continues to improve but in a wider perspective the outlook remains bearish; until the 10 yr can decline back to 2.10% that will not change.
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A better start in the bond and mortgage markets to begin the week. Europe’s equity markets lower leading to a softer open in the US stock market. The 10 yr note back to 2.00% at 9:00 (2.03% Friday), MBS prices at 9:00 +6/32 (.18 bp). Interest rates remain in tight ranges, a pattern that began last November. There is an increasing clamor among analysts and traders to exit fixed income investments in favor of equities and commodities; almost every day now for weeks there is another pundit joining the pack that wants out of fixed income investments. So far about all we can take away from it is that interest rates have stopped their decline, however as we have noted previously, the rate markets are not likely to increase much.
Prior to the 9:30 open stock indexes were trading lower; at 9:30 the DJIA opened better, up 5 points. The 10 yr backed off its best level on the open but still up 7/32 at 2.00% -3 bp with MBS prices +6/32 (.18 bp).
Pressure in Europe and US equity markets this morning triggered on a report that showed that China’s exports grew at a slower pace than forecast. China’s exports are at lows that go back 12 years. China’s various economic reports recently have been weaker than thought, worrying investors that the global economy is slowing. Europe of course is falling back into recession and China’s explosive growth is slowing a little. The stock market however, opened better and continued to improve into 10:00 taking some of the early gains away from the bond and mortgage markets.
Finance ministers from the 17 nations that share the euro gather in Brussels today to approve the 130 billion-euro second bailout package for Greece. Bondholders last week agreed to exchange the country’s privately held debt for new securities. The finance ministers will also discuss Spain’s budget-cutting efforts and Portugal’s aid program.
The week’s economic data has a lot to assimilate, and focus on the FOMC meeting tomorrow. The Fed isn’t likely to change its direction on keeping the Fed funds rate at 0.25% until the end of 2014, however there is a growing belief within the FOMC that the target should be lifted in favor of keeping the rate low but couching it based on the economy and inflation expectations that are increasing somewhat. Inflation fears are increasing although businesses have little pricing power and likely won’t have for a year or so. Most concerns over inflation are based on past situations where the Fed failed to act rapidly enough to fight it, allowing the infection to spread into an inflationary spiral.
This afternoon at 1:00 Treasury will begin three days of auctions to borrow $66B. Today its $32B of 3 yr notes. At 2:00 Treasury will report the Feb budget, expected to be -$229.0B.
The near term outlook for US interest rates is flat; the bond and mortgage markets have for months been in a narrow range. There is little likelihood that rates will change much until there are new fundamentals and we don’t see where that would come from. That said, given the unsettled mid-east and in Europe as it heads into another recession shocks and surprises are not out of the equation. Technically, the 10 yr note continues to carry a very slight bearish bias although not much and most studies are not weakening, just holding steady. The rest of the day should be quiet ahead of tomorrow’s FOMC meeting and key economic data through the week and Treasury auctions today, tomorrow and Wednesday.
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This Week; the FOMC meets on Tuesday. The Fed has been talking about the economy not being as solid as what markets believe and there are a few members that want the FOMC to withdraw its pledge to keep rates low through 2014. There are other members that talk about another easing move with the Fed buying more MBSs and treasuries. The statement at 2:15 on Tuesday should be interesting given the differences od opinions within the FOMC. Treasury will auction $66B of notes and bonds beginning on Monday with $32B of 3 yr notes. Economic data has PPI and CPI, Philly Fed business index (expected to have improved in March), Feb retail sales (+0.7%), and Feb data on manufacturing with industrial production and capacity utilization.
Euro-area finance ministers meet to sign off on the latest Greek bailout and discuss crisis-fighting measures in Spain and Portugal. Greece got its funds to avoid default but based on definition the bailout with bond holders taking huge losses is considered defaulting. The bond market continues to move in a very tight range with no particular direction; interest rates have been little changed since late October, in a 15 to 20 basis point range on the 10 yr note and 6 to 10 basis points on 30 yr mortgage rates. With the fed keeping short rates at zero there is little likelihood the long end (10 yr and mortgages) will increase much. That said, we still hold that rates have seen their lows and any significant move lower is also unlikely as long as the economy is seen as recovering.
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ADP said there were 216K private jobs created in Feb; forecasts were for about 203K. Jan ADP revised to +173K from 170K. Prior to the 8:15 report the stock indexes were better after the strong selling yesterday; the indexes held but didn’t advance more. The 10 yr note prior to the data traded unchanged as did mortgage prices; selling in treasuries and mortgages took the 10 yr note down 7/32 to 1.97% and MBS prices -5/32 (.15 bp). Over the previous six reports, ADP’s initial figure was closest to the Labor Department’s first estimate of private payrolls in October, when it overstated the gain in jobs by 6,000. The estimate was least accurate in December, when it overestimated the employment gain by 113,000. The report showed an increase of 46,000 workers in goods-producing industries, which includes manufacturers and construction companies. Employment at factories rose by 21,000. Service providers added 170,000 workers. The ADP report is based on data from about 340,000 businesses employing more than 21 million workers. Macroeconomic Advisers LLC in St. Louis produces the data with ADP.
At 8:30 Q4 productivity was expected up 0.9%, as reported it was right on +0.9% frm +0.7% on the advance data last month. Q4 unit labor costs jumped 2.8%, a huge increase from +1.2% on the advance report and on forecasts of unchanged frm the advance. Productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce.
The DJIA opened +25, NASDAQ +14 and the S&P +4; the 10 yr note -3/32 at 1.96% +1 bp while MBS prices were unchanged after being down 5/32 (.15 bp) at 9:00. The stock market didn’t open as strong as pre-market trading.
Out of Europe; Greece is lining up private investors that will have to take a huge hit on debt held by the country. According to reports Greece now has 39% of the creditors on board, it has to have 75% to move forward; yesterday the total was 20% that committed. January German factory orders fell 2.7% from December, when they gained 1.6%, the Economy Ministry in Berlin said today. Economists forecast a 0.6% increase, according to estimates. From a year ago, orders dropped 4.9% when adjusted for work days.
Later this afternoon January consumer credit is expected to show an increase of $10.0B; we pay particular attention to the revolving credit number more than the overall as an indication of consumers willing to take on debt. Consumers’ attitude toward debt is key to sentiment and outlook by the normal citizen. Increasing revolving credit implies consumers are more optimistic about job stability and improved economic outlook.
The ADP data this morning put a little selling in the treasury and mortgage markets, however so far there isn’t a lot of improvement in the stock market. Once again; the 10 yr is well contained in its present range and keeping mortgage interest rates relatively flat for the past month or two. While ADP jobs were encouraging, much of the recent data coming out of Europe is confirming the region is sliding back into recession. In the US the Fed continues to warn that the economy is on unstable ground, the Fed will keep interest rates low as a result; private forecasts conflict with the Fed’s view however. Most economists and analysts are touting an increasing recovery.
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Thursday 02/16/2012
8:30 economic releases took the small improvements out of the bond market this morning and improved the weak stock index futures which were trading lower. Weekly jobless claims were thought to be up 7K, as reported claims fell again by 13K to 348K, the lowest level in four years; continuing claims declined to 3.426 mil frm 3.526 mil last week. Jan housing starts were in line, up 1.5% to 699K annualized units; single family starts though fell 1.0%. Jan building permits were expected down 0.6% but actually increased 0.7%. Jan producer price index expected up 0.3% up just 0.1%, however the more important core (ex food and energy) surprisingly increased 0.4%. Inflation, the constant fear for fixed income investors, based on the Jan data is increasing a little. Treasuries slipped on the data taking mortgage prices lower. Fortunately for the bond market the Fed has made it clear the inflation data it focuses on isn’t CPI but the personal consumption expenditures that accompanies the monthly personal income and spending data. On a yr/yr basis the overall PPI up 4.1% and the core up 3.0%.
Three data points at 8:30 turned the 10 yr note from +5/32 in price to -9/32 at 9:00, the yield prior to 8:30 1.92%, at 9:00 1.97%. MBS prices up 3/32 (.09 bp) prior to 8:30, at 9:00 -7/32 (.22 bp). DJIA futures prior to 8:30 -50, at 9:00 +7, not getting the bounce traders were expecting on the better claims and housing data.
At 9:30 the DJIA opened +18, the 10 yr note -8/32 at 1.96% +3 bp and MBS prices -6/32 (.18 bp).
Nothing new out of Europe last night about Greece. Yesterday there were rather harsh comments from Greece officials toward Germany’s finance minister complaining that Germany wants Greece out of the EU. Greek politicians continue to add more cuts in order to achieve the needed funds to avoid defaulting in March, frustration increasing as each time Greece believes it has met the criteria set out by the EU, IMF and ECB it seems it comes up less than what is demanded. Greek citizens rioting and unsettling officials of the troika leading to more details and further austerity.
The final data today at 10:00; the Feb Philadelphia Fed business index expected at 10.0 frm 7.3 in Jan, right in line at 10.2. Interior components; new orders index 11.7 frm 6.9, employment 1.1 frm 11.6 in Jan and prices pd at 38.7 frm 31.8. Any index under zero is considered contractions, the higher the index the better the outlook. Employment at close to zero and a big decline from Jan provides another perspective on the stronger decline in weekly claims earlier this morning. There was no market reaction to the data in either stocks or bond markets.
Longer term interest rates continue to trade within a very tight range; essentially neutral, not bearish but not bullish either. Safety into treasuries over the Europe debt issues continues but with less than in the past. The 10 yr note, driver for 30 yr mtgs is finding resistance at 1.90% and support at the 2.00% level. MBSs in even a tighter yield range. The remainder of the day rate markets will track equity indexes and whatever any news out of Europe.
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Treasuries and mortgages opened unchanged this morning with no news. Greece still can’t finalize anything on their debt workout; three weeks and counting since Greek officials said they were close to an agreement with creditors. Last week’s Jan employment report was much better than even the most optimistic forecasts and counter to the pessimistic outlook delivered from the Fed at the conclusion of the Jan 25th FOMC meeting. Not only the employment data stronger but the two ISM reports for Jan (manufacturing and service sector) were better than what had been expected.
European bank supervisors may discuss easing requirements for lenders to hold capital against sovereign debt this week as part of more than 30 meetings this month to track banks’ progress in complying with updated requirements, two people with knowledge of the discussions said. After three weeks of discussions and nothing coming from it Fitch said a Greek disorderly default “cannot be wholly discounted.” “Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place,” the ratings company said in a statement today. “However, a disorderly default, which may include an exit from the euro zone, cannot be wholly discounted.” European leaders stepped up pressure on Greek politicians to accept the conditions for a 130 billion-euro ($171 billion) bailout, saying time was running out.
Today we have no scheduled reports; this week the economic calendar doesn’t offer much. Treasury will auction $72B of notes and bonds this week beginning tomorrow through Thursday.
At 9:30 the DJIA opened -60, the 10 yr note -3/32 to 1.94% +1.5% and mortgage prices +1/32 (.03 bp). Treasuries facing auctions this week are hanging back with yields unchanged after Friday’s drumming over the Jan employment report.
This Week’s Economic Calendar:
Tuesday;
1:00 pm $32B 3 yr note auction
3:00 pm Dec consumer credit (+$8.5B, +$20.4B in Nov)
Wednesday;
7:00 am MBA mortgage applications
1:00 pm $24B 10 yr note auction
Thursday;
8:30 am weekly jobless claims (+3K to 370K; continuing claims 3.475 mil frm 3.437 mil)
10:00 am Dec wholesale inventories (+0.4%)
1:00 pm $16B 30 yr bond auction
Friday;
8:30 am Dec trade balance (-$48.2B)
9:55 am U. of Michigan sentiment index (74.0 frm 75.0)
2:00 pm Jan Treasury budget (-$40.0B)
Treasuries continue to weaken this morning, after opening slightly better the 10 yr note at 10:00 -4/32 at 1.94% +1.5% with MBS trade -1/32 (.03 bp) at 10:00. Technically still positive but softening now. As we have noted countless times, the 10 yr note struggles when it falls below 2.00%, mortgage rates remain subject to treasuries and also have demonstrated an inability to fall when at the present levels. Safe haven to treasuries has waned even with the potential of Greece deflating. Traders don’t believe Greece will default even with nothing being finalized for weeks and the clock ticking for Greece to make its next payment next month.
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Filed under: Daily Mortgage Interest Rate Update, Interest Rates | Tags: Conventional Loan Rates, Credit Union Mortgage Division, cu mortgage, CU Mortgage Division, CU Mortgage Division Lacey Washington, First Mortgage Rate Lock Advice, First Mortgage Rates, Home Loans Olympia Washington, Mortgage Interest Rates, Olympia WA Interest Rates, Tumwater Washington Mortgage Lender, Washington, William Tuning - Olympia
At 8:15 ADP reported its private jobs data for Jan; forecasts were for an increase of 200K jobs, as reported +170K. ADP revised Dec job growth from 325K to 292K. Prior to the rep[ort the 10 yr note traded lower by 8/32, the reaction to the weaker report briefly back to unchanged but by 9:00 back to -6/32 with MBS prices at 9:00 -1/32 (.03 bp). US equity market trading prior to the open at 9:30 had indexes trading higher in line with better markets in Europe. On Friday A the BLS report is forecast to show the U.S. added 145,000 jobs, according to 81 economists in a separate survey, compared with 200,000 the previous month. The unemployment rate is forecast to remain steady 8.5%.
China reported an unexpected increase in manufacturing today; that spurred rallies in Europe’s markets. Borrowing costs in Italy fell slightly on sales to the lowest since October as stock gains spurred demand for riskier assets. Portugal’s notes rose as borrowing costs declined at bill sales. The German 10-year yield rose two basis points, or 0.02 percentage point, to 1.81% at 1:52 p.m. London time after falling to 1.78% yesterday, the lowest since Jan. 18, and the same yield as US 10 yr notes.
At 9:30 the DJIA opened +75, the 10 yr note -10/32 back to 1.83% +3 bp, and MBS prices -3/32 (.09 bp).
Weekly MBA mortgage applications for last week out at 7:00 this morning. Mortgage applications decreased 2.9% from one week earlier, for the week ending January 27, 2012. The Refinance Index decreased 3.6% from the previous week. The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 4.11 percent. The four week moving average is up 2.48% for the seasonally adjusted Purchase Index, while this average is up 4.22 % for the Refinance Index. The refinance share of mortgage activity decreased to 80.0% of total applications from 81.3% the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.09% from 4.11%, with points decreasing to 0.41 from 0.47 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.33% from 4.39%, with points increasing to 0.41 from 0.40 (including the origination fee) for 80% loans. This is the lowest 30-year jumbo rate since MBA started tracking the series in January 2011. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.96% from 3.97%, with points increasing to 0.61 from 0.57 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.36% from 3.40%, with points increasing to 0.41 from 0.40 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.94% from 2.91%, with points decreasing to 0.39 from 0.41 (including the origination fee) for 80% loans.
Next up, at 10:00, Jan ISM manufacturing index, expected at 54.5 frm 53.9; as reported 54.1 frm a revised 53.1 in Dec; new orders index 57.6 frm 54.8. employment at 54.3 frm 54.8 and prices pd at 55.5 frm 47.5. Not much of an initial reaction in either stock indexes of the bond and mortgage markets.
Finally today, Dec construction spending was expected up 0.4%, as reported +1.5% but Nov was revised lower to +0.4% frm +1.2% originally reported.
Treasury announced next week’s quarterly refunding details this morning; a total of $72B, $3B more than last month al on the 30 yr bond.
Technically, the 10 yr has once again found resistance at 1.80% for the moment. The overall low yield was 1.70% back on Sept 23, 2011. At the present level on the 10 yr and MBSs are looking a little overbought based on momentum oscillators. If the bond market has run out of fuel now, technically we would continue a bullish outlook as long as the 10 yr doesn’t move above 1.93%. MBSs have support at 103.08 bp, presently at 103.25 bp.
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Treasuries and MBS markets started flat this morning with stock indexes pointing to a better open at 9:30. At 8:30 Q4 employment cost index was right on, +0.4%, no reaction to it however. At 9:00 the Nov Case/Shiller 20 city home price index declined 0.7% frm Oct and -3.4% yr/yr as expected, no reaction to it.
In Europe the EU summit most countries in the European Union agreed to tighter budget controls. The EU completed a fiscal-discipline treaty that speeds sanctions on high-deficit states, requiring euro countries to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, while Britain and the Czech Republic boycotted it. The meeting ended with German Chancellor Angela Merkel voicing frustration that Athens has failed to overhaul the Greek economy. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
Greece aims to complete debt-swap talks with bondholders this week. Prime Minister Lucas Papademos told reporters after the summit that he is “strongly committed” to reaching a deal. Meeting at the 16th summit in two years, they also agreed to bring the region’s permanent bailout fund, the European Stability Mechanism, into operation on July 1, a year ahead of schedule. As far as traders are concerned there was no progress on Greece and the EU summit just another summit where a lot of talk and no direct action; steps in the right direction but slower than a snail in molasses.
UK consumer confidence improved in Jan according to gauge of sentiment it added 4 points from December to minus 29, the strongest reading since June. The increase in confidence and the reaction to the EU summit improved equity markets in the UK and Europe adding some thrust to US markets early this morning.
At 9:30 the DJIA opened +55, the 10 yr -2/32 at 1.85% unch and MBS prices -2/32 (.06 bp).
Jan Chicago purchasing managers’ index, expected at 62.5 unchanged from Dec; as released the index was lower at 60.2. The new orders component at 63.6 frm 67.1. prices pd index at 62.4 frm 63.8 and the employment index at 54.7 frm 59.2. There was no initial reaction to the data in the bond and mortgage markets but the key stock indexes backed off from the better levels prior to the report, still holding gains but lost about half of the improvement.
The final data today, at 10:00 Jan consumer confidence index for Jan was expected to have increased to 67.0 frm 64.5 in Dec; it was weaker, at 61.1 frm revised 64.8 in Dec. Two economic releases that were less than expected pulled equity markets back and put support in the interest rate sector.
The 10 yr at a resistance level between 1.85 and 1.80%. Most of the momentum oscillators are weakening a little but the wider perspective remains positive.
