Mortgage Rates

Mortgage Rates US treasuries were strong prior to 8:30 with the key stock indexes weaker; at 8:00 the 10 yr yield was at 1.48% after ending at 1.51% yesterday. As noted, there is strong resistance from a technical perspective at 1.46%, yesterday after the extremely strong demand for Treasury’s 10 yr auction the 10 made a quick but unsustained run to 1.459%---the rate the auction drew. It was however, short-lived after the FOMC minutes didn’t add more conviction that the Fed would initiate another QE. The FOMC minutes didn’t imply no easing, they were about what we already knew but still the stock market weakened and rate markets fell back a little. At 8:30 weekly jobless claims were expected at about 370K, as reported claims fell to 350K frm 376K last week. The decline was not much of a surprise however, analysts attribute the fall in claims to the expected lack of layoffs in the auto industry that occurs each year at this time when manufacturers re-tool for the new model year. The reaction to the less claims didn’t help improve pre-opening weakness in key equity market indexes; interest rate markets held well but were off the best levels prior to 8:30. The four-week moving average, a less-volatile measure, fell to 376,500 last week from 386,250. The number of people continuing to collect jobless benefits fell by 14,000 in the week ended June 30 to 3.3 million. The continuing claims figure does not include the number of workers receiving extended benefits under federal programs. June import prices fell more than what was thought; down 2.7%, it was the biggest since December 2008 and followed a 1.2% drop in May. The decline was largely due to the recent decline in oil prices. Prices excluding fuel fell 0.3%, the most in almost two years. The cost of goods and materials from abroad may remain depressed as cooling markets from Europe to Asia restrain demand for commodities like oil. A rising dollar also means American companies can hold the line on prices, consistent with Federal Reserve policy makers’ projections that inflation will ebb. Not much out of Europe today that has significance to traders. The situation in the EU is well-known by now, dragging the world economies lower. Although markets appeared to be disappointed with the FOMC minutes yesterday, the Fed is still n play for another easing move. There was an increasing thought that the Fed would ease at the next FOMC meeting at the end of this month, however the take away from the minutes suggests any easing would likely to delayed until the Sept meeting. Does it matter that the Fed will ease? Any additional easing won’t add a job or help the economy other than keeping interest rates from otherwise increasing. The Fed has no live ammo to use other than buying up more treasuries; meanwhile recent data reveals the in anticipation of more Fed buying, banks are beginning to hoard treasuries. At 1:00 this afternoon Treasury will complete its borrowing this week with $13B of 30 yr bonds in a re-open of the 30 yr issued in May. Yesterday the 10 yr note auction saw demand that was the strongest in years. What stood out more than anything else was that 45.4% of the $21B was bought directly from Treasury ( the norm is about 10% for direct buyers. The implication is banks were heavy buyers, avoiding buying through primary dealers. At 2:00 Treasury will report the June deficit at -$75B. The deficit continues to increase with little end in sight as Congress and the Administration are not likely to increase taxes or cut spending until after the elections in November. Even then there is little reason to expect politicians have the guts to deal with the debt growth. The US is on the same track that led to the EUs eventual demise as presently constructed; nevertheless there is little stomach to deal with it, pushing it further down the track. At 9:30 the DJIA opened -73, NASDAQ -25 and the S&P -10; the 10 yr note at 1.49% -2 bp with mortgage prices up just 1/32 (.03 bp) frm yesterday’s closes. The bond and mortgage markets are trading at their respective resistance levels. Likely it will take a few days and more negative economic data as well as more nasty news out of Europe to break the resistance areas into new lows.