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Monday, April 9, 2012
Mortgage Rates
Friday’s March employment report (non-farm jobs up just 120K and private jobs +121K) was half what was expected by economist and analysts. The reaction was swift and strong sending mortgage prices up 28/32 (.88 bp) and the 10 yr note yield down to 2.04% -14 basis points. Mortgage rates down about 12 basis points. The stock market was closed on Friday for Good Friday; this morning the key indexes are catching up to the reaction to the soft employment. The DJIA opened at 9:30 -90, NASDAQ -44, and S&P 500 -15; within five minutes the DJIA was off 143. The 10 yr note +4/32 to 2.03% -1 bp while MBS prices were up 4/32 (.12 bp) frm Friday’s close.
Employment didn’t come close to the forecasts, while not unusual for the monthly report, it was so far off the mark it sent traders and investors back into treasuries on increased belief the Fed may be more inclined to ease further. It was not only employment that drove rates down; Europe’s debt problems are back again after a month or so of little news. Spain’s prime minister saying his country is in “extreme difficulty”. Once again investors are turning to safety on the idea Spain is going to need a bailout and reprise concern that Europe’s economies will drag the region into recession and resurrect the concerns that the EU may not survive. The renewed fears are hitting US equity markets; after the strong rally in the key indexes stocks were prime for some decline but until Spain and the employment report took control the pull back in stock markets was being thought of as a buying opportunity; now the outlook has become much less optimistic. Not only is Spain in the headlights; The European Central Bank’s financing for Portuguese lenders rose to a record in March. Portugal became the third euro-area country after Greece and Ireland to require aid and will receive 78 billion euros under its agreement with the International Monetary Fund and the European Union.
Although job gains in March were half of what the last four months revealed, is that enough to get the Fed to ease again? Not a question easy to answer; one month of disappointing job growth isn’t in itself enough to get the Fed to ease. Besides as long as long term rates are at the present low levels an easing move wouldn’t likely add much to pushing rates much lower. Low interest rates are not the problem for the economy, low rates haven’t driven employment up or done much for the housing sector. That said, the potential of another QE will be debated now for a month. Investors are plowing into Treasuries at a record pace as the supply of the world’s safest securities dwindles, ensuring yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment.
Treasury will auction $66B of note and bonds beginning tomorrow with $32B of 3 yr notes, Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds.
After the huge rally in the bond and mortgage markets on Friday the technical outlook has improved. The 10 yr note yield well under its 20 and 40 day averages and all of the momentum oscillators we track went from neutral to bullish levels. Although the picture has changed we still believe there will be continued volatility in the bond market for the next week or two until things settle a little.
Friday’s March employment report (non-farm jobs up just 120K and private jobs +121K) was half what was expected by economist and analysts. The reaction was swift and strong sending mortgage prices up 28/32 (.88 bp) and the 10 yr note yield down to 2.04% -14 basis points. Mortgage rates down about 12 basis points. The stock market was closed on Friday for Good Friday; this morning the key indexes are catching up to the reaction to the soft employment. The DJIA opened at 9:30 -90, NASDAQ -44, and S&P 500 -15; within five minutes the DJIA was off 143. The 10 yr note +4/32 to 2.03% -1 bp while MBS prices were up 4/32 (.12 bp) frm Friday’s close.
Employment didn’t come close to the forecasts, while not unusual for the monthly report, it was so far off the mark it sent traders and investors back into treasuries on increased belief the Fed may be more inclined to ease further. It was not only employment that drove rates down; Europe’s debt problems are back again after a month or so of little news. Spain’s prime minister saying his country is in “extreme difficulty”. Once again investors are turning to safety on the idea Spain is going to need a bailout and reprise concern that Europe’s economies will drag the region into recession and resurrect the concerns that the EU may not survive. The renewed fears are hitting US equity markets; after the strong rally in the key indexes stocks were prime for some decline but until Spain and the employment report took control the pull back in stock markets was being thought of as a buying opportunity; now the outlook has become much less optimistic. Not only is Spain in the headlights; The European Central Bank’s financing for Portuguese lenders rose to a record in March. Portugal became the third euro-area country after Greece and Ireland to require aid and will receive 78 billion euros under its agreement with the International Monetary Fund and the European Union.
Although job gains in March were half of what the last four months revealed, is that enough to get the Fed to ease again? Not a question easy to answer; one month of disappointing job growth isn’t in itself enough to get the Fed to ease. Besides as long as long term rates are at the present low levels an easing move wouldn’t likely add much to pushing rates much lower. Low interest rates are not the problem for the economy, low rates haven’t driven employment up or done much for the housing sector. That said, the potential of another QE will be debated now for a month. Investors are plowing into Treasuries at a record pace as the supply of the world’s safest securities dwindles, ensuring yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment.
Treasury will auction $66B of note and bonds beginning tomorrow with $32B of 3 yr notes, Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds.
After the huge rally in the bond and mortgage markets on Friday the technical outlook has improved. The 10 yr note yield well under its 20 and 40 day averages and all of the momentum oscillators we track went from neutral to bullish levels. Although the picture has changed we still believe there will be continued volatility in the bond market for the next week or two until things settle a little.
Friday, April 6, 2012
Mortgage Rates
This morning’s March employment report shocked markets with its weakness. Non-farm jobs were widely expected to have increased 201K, as reported up just 120K; non-farm private jobs were expected up 224K, as reported +121K. The unemployment rates declined to 8.2% frm 8.3% suggesting more people are not looking for jobs. On Wednesday ADP said private jobs increased 209K. The bond and mortgage markets rallying hard this morning, at 9:00 the 10 yr note yield at 2.08% down 10 basis points frm yesterday’s close and mortgage prices +16/32 (.50 bp). Employment data has always been difficult to forecast, usually there is a burst of volatility on the data, today is one major example. If the stock market were trading today the DJIA would open down 150 points based on trading in the futures markets. The Feb jobs originally reported +227K was revised to 240K; Jan jobs originally reported +284K revised to 275K. A smaller than forecast addition of 120,000 jobs last month broke a pattern that was giving U.S. voters a growing sense of security.
The very weak March employment data will increase the idea the Fed may consider another easing; we have held the Fed would not ease again, but if employment continues to be soft the Fed has the evidence it needs to ease again if necessary. Although the odds have increased as a result of the employment data, and somewhat confirms what the Fed has been concerned about that the economic recovery is not on solid footing; another easing may be unnecessary as long as interest rates stay low. With today’s sharp drop in rates, and the declines this week, the Fed doesn’t have to ease.
What now appears to be a weaker economy that had driven equity markets to four year highs, has changed the near term outlook on the surprisingly weak employment data. Not only the economy but Europe, after a couple of months of stability, is now back on the front page. Two days ago Spain’s Prime Minister rocked markets with his comment that its economy is in“extreme difficulty,” renewing the possibility that another bailout will be needed. The two events has changed the outlook for the bond and mortgage markets for the moment. Today’s improvement in the bond and mortgage markets turned most of our technical work from generally neutral to bullish. When markets open on Monday we expect the recent increase in volatility to continue. We were not looking for rates to decline much, with safety trades back on Europe and the very weak employment report today the outlook has changed. From now until the next FOMC meeting on April 25th the debate on another Fed ease will dominate thinking and be influenced on every data point between now and then.
This morning’s March employment report shocked markets with its weakness. Non-farm jobs were widely expected to have increased 201K, as reported up just 120K; non-farm private jobs were expected up 224K, as reported +121K. The unemployment rates declined to 8.2% frm 8.3% suggesting more people are not looking for jobs. On Wednesday ADP said private jobs increased 209K. The bond and mortgage markets rallying hard this morning, at 9:00 the 10 yr note yield at 2.08% down 10 basis points frm yesterday’s close and mortgage prices +16/32 (.50 bp). Employment data has always been difficult to forecast, usually there is a burst of volatility on the data, today is one major example. If the stock market were trading today the DJIA would open down 150 points based on trading in the futures markets. The Feb jobs originally reported +227K was revised to 240K; Jan jobs originally reported +284K revised to 275K. A smaller than forecast addition of 120,000 jobs last month broke a pattern that was giving U.S. voters a growing sense of security.
The very weak March employment data will increase the idea the Fed may consider another easing; we have held the Fed would not ease again, but if employment continues to be soft the Fed has the evidence it needs to ease again if necessary. Although the odds have increased as a result of the employment data, and somewhat confirms what the Fed has been concerned about that the economic recovery is not on solid footing; another easing may be unnecessary as long as interest rates stay low. With today’s sharp drop in rates, and the declines this week, the Fed doesn’t have to ease.
What now appears to be a weaker economy that had driven equity markets to four year highs, has changed the near term outlook on the surprisingly weak employment data. Not only the economy but Europe, after a couple of months of stability, is now back on the front page. Two days ago Spain’s Prime Minister rocked markets with his comment that its economy is in“extreme difficulty,” renewing the possibility that another bailout will be needed. The two events has changed the outlook for the bond and mortgage markets for the moment. Today’s improvement in the bond and mortgage markets turned most of our technical work from generally neutral to bullish. When markets open on Monday we expect the recent increase in volatility to continue. We were not looking for rates to decline much, with safety trades back on Europe and the very weak employment report today the outlook has changed. From now until the next FOMC meeting on April 25th the debate on another Fed ease will dominate thinking and be influenced on every data point between now and then.
Thursday, April 5, 2012
Mortgage Rates
Early activity this morning had the bond and mortgage markets continuing their rebound from Tuesday’s selling. The 10 yr note this morning has regained all of its losses from the one day selling, mortgage prices at the end of the day Monday were 102.30/32 for April 30 yr FNMAs, this morning at 8:45 the price 102.27/32.
Weekly jobless claims this morning were about where they were expected, -6K to 357K, the decline based on last week’s claims revised from 359K to 363K. Continuing claims declined to 3.338 mil frm 3.354 mil the previous week. Claims are now the lowest since April 2008 and continuing claims the lowest since August 2008. Prior to data at 8:30 the stock index futures were weaker and treasury and mortgage markets were strong; after the data stock indexes, still lower but well off the lows and the bond and mortgage markets were holding but also off their best levels as volatility continues to exaggerate movement.
In the FOMC minutes Tuesday there was no mention about the possibility of another QE frm the Fed, traders dumped treasuries and other fixed income investments. The Fed’s comments that the US economy was improving gave some momentary credence that the Fed would not have to do another easing move; but what was over-looked was the comments that the Fed remained concerned that the employment sector still is weak and uneven. Since Tuesday’s selling two factors have taken the driver’s seat in the bond market. The stock market has come under attack and has declined, the DJIA -190 points on Tuesday and Wednesday. Europe is back in play as Spain’s bond market has seen yields increase implying investors are reconsidering the potential of another default crisis. European stocks fell for a third day, the euro weakened and Spanish bonds declined on concern that slowing growth will exacerbate the region’s debt crisis. The recent pattern for the US stock market is to follow Europe’s markets, as they fall the US stock market is following the down.
Although I still do not think the Fed will do another easing move; the markets are not giving up on the idea. We hold that the US economy will continue to improve---slowly---but enough that the Fed will not find it necessary to ease again. The foundation for not expecting another easing is based primarily on our more positive outlook for the economy. If however we are wrong then the Fed will not hesitate to ease again. It depends on one’s outlook whether the Fed will ease or not. I admit that the Fed has a point about the sluggish recovery and the uneven and shaky employment outlook, and every day the stock market slips the outlook for another easing increases. Europe’s stock markets falling, the US market selling off in what we believe is a long overdue correction after the huge increases in the last two months.
Just when Europe’s debt crisis has ebbed, it is back. Spain’s increase in their bond market rates is roiling markets again. Recent bond sales in Spain had been meeting with better than expected demand and at slightly lower rates than analysts were thinking. Now Spain is seeing rates increase as investors decline to buy at the levels seen a week ago; the debt crisis is once again being brought into question. The EU debt problems won’t go away, it will likely continue to surface and fade then resurface for a long time, each time it will impair equity markets and add support to the bond markets.
At 9:30 the DJIA opened down 48, NASDAQ -6, S&P -5. The 10 yr note +13/32 at 2.17% -6 bp and MBS 30 yr prices +6/32 (.18 bp).
There are no more scheduled data points today. Tomorrow the March employment report is generally expected to see non-farm jobs increase about 200K and private jobs up 240K with the unemployment rate unchanged at 8.3%. Yesterday ADP reported private jobs up 209K, recently ADP’s data has been close to what the BLS reports on the “official” re[ort. Tomorrow is Good Friday, most markets will be closed; the stock market will be closed but as I understand it stock index futures will trade until noon. The bond market will trade until noon.
As we noted Tuesday when markets went postal, the action would set up increased volatility. Today so far a prime example; at 8:00 this morning the 10 yr note rate fell to 2.13% and MBS prices were up 14/32 (.44 bp). By 9:30 the 10 yr at 2.17% and MBSs +6/32 (.18 bp). At 10:00 the 10 yr back to 2.20% and MBS prices +3/32 (.09 bp). The DJIA opened -48 at 9:30, at 10:00 -24. The remainder of the day for the interest rate markets will be following the stock indexes, a rally will add some pressure on rates while another strong sell-off will support better prices and some lower rates.
Early activity this morning had the bond and mortgage markets continuing their rebound from Tuesday’s selling. The 10 yr note this morning has regained all of its losses from the one day selling, mortgage prices at the end of the day Monday were 102.30/32 for April 30 yr FNMAs, this morning at 8:45 the price 102.27/32.
Weekly jobless claims this morning were about where they were expected, -6K to 357K, the decline based on last week’s claims revised from 359K to 363K. Continuing claims declined to 3.338 mil frm 3.354 mil the previous week. Claims are now the lowest since April 2008 and continuing claims the lowest since August 2008. Prior to data at 8:30 the stock index futures were weaker and treasury and mortgage markets were strong; after the data stock indexes, still lower but well off the lows and the bond and mortgage markets were holding but also off their best levels as volatility continues to exaggerate movement.
In the FOMC minutes Tuesday there was no mention about the possibility of another QE frm the Fed, traders dumped treasuries and other fixed income investments. The Fed’s comments that the US economy was improving gave some momentary credence that the Fed would not have to do another easing move; but what was over-looked was the comments that the Fed remained concerned that the employment sector still is weak and uneven. Since Tuesday’s selling two factors have taken the driver’s seat in the bond market. The stock market has come under attack and has declined, the DJIA -190 points on Tuesday and Wednesday. Europe is back in play as Spain’s bond market has seen yields increase implying investors are reconsidering the potential of another default crisis. European stocks fell for a third day, the euro weakened and Spanish bonds declined on concern that slowing growth will exacerbate the region’s debt crisis. The recent pattern for the US stock market is to follow Europe’s markets, as they fall the US stock market is following the down.
Although I still do not think the Fed will do another easing move; the markets are not giving up on the idea. We hold that the US economy will continue to improve---slowly---but enough that the Fed will not find it necessary to ease again. The foundation for not expecting another easing is based primarily on our more positive outlook for the economy. If however we are wrong then the Fed will not hesitate to ease again. It depends on one’s outlook whether the Fed will ease or not. I admit that the Fed has a point about the sluggish recovery and the uneven and shaky employment outlook, and every day the stock market slips the outlook for another easing increases. Europe’s stock markets falling, the US market selling off in what we believe is a long overdue correction after the huge increases in the last two months.
Just when Europe’s debt crisis has ebbed, it is back. Spain’s increase in their bond market rates is roiling markets again. Recent bond sales in Spain had been meeting with better than expected demand and at slightly lower rates than analysts were thinking. Now Spain is seeing rates increase as investors decline to buy at the levels seen a week ago; the debt crisis is once again being brought into question. The EU debt problems won’t go away, it will likely continue to surface and fade then resurface for a long time, each time it will impair equity markets and add support to the bond markets.
At 9:30 the DJIA opened down 48, NASDAQ -6, S&P -5. The 10 yr note +13/32 at 2.17% -6 bp and MBS 30 yr prices +6/32 (.18 bp).
There are no more scheduled data points today. Tomorrow the March employment report is generally expected to see non-farm jobs increase about 200K and private jobs up 240K with the unemployment rate unchanged at 8.3%. Yesterday ADP reported private jobs up 209K, recently ADP’s data has been close to what the BLS reports on the “official” re[ort. Tomorrow is Good Friday, most markets will be closed; the stock market will be closed but as I understand it stock index futures will trade until noon. The bond market will trade until noon.
As we noted Tuesday when markets went postal, the action would set up increased volatility. Today so far a prime example; at 8:00 this morning the 10 yr note rate fell to 2.13% and MBS prices were up 14/32 (.44 bp). By 9:30 the 10 yr at 2.17% and MBSs +6/32 (.18 bp). At 10:00 the 10 yr back to 2.20% and MBS prices +3/32 (.09 bp). The DJIA opened -48 at 9:30, at 10:00 -24. The remainder of the day for the interest rate markets will be following the stock indexes, a rally will add some pressure on rates while another strong sell-off will support better prices and some lower rates.
Tuesday, April 3, 2012
Mortgage Rates--
A quiet start in the bond market this morning but helped a little with stock indexes looking weaker into the open at 9:30. Yesterday treasuries and mortgage prices improved even with the stock market improving. Europe’s stock markets were lower after a couple of good days. Today’s only data, Feb factory orders, out at 10:00 were expected to jump after declining in Jan. At 9:00 this morning the 10 yr note unchanged while mortgage prices on 30 yr fixed loans up .03 bp.
March auto sales are expected to have increased as consumers were driven by high gasoline prices. Chrysler sales already out were up 35% in March on sales of small Fiat models; sales last month climbed to 163,381 cars and light trucks from 121,730 a year earlier. Sales of the Fiat 500 led Chrysler but other models also saw stronger sales. Later today the rest of the manufacturers will report; GM sales are expected to be boosted by the Chevrolet Sonic subcompact that gets 33 miles (53 kilometers) per gallon in combined city and highway driving, may report a 19% increase in March sales. A Ford executive told CNBC this morning its sales were up 5.0%. Toyota probably increased total sales by 15%, Honda sales may have increased 5.3%. A 14.5 million sales rate for March would exceed the 13.1 million pace from a year earlier and set an average rate of 14.6 million for the first quarter, ahead of analysts’ estimates for full-year deliveries. Total light-vehicle sales may rise to 1.42 million, the average of eight analysts’ estimates. That would be the highest monthly total since August 2007, according to researcher Autodata Corp.
At 9:30 the DJIA opened -16, 10 yr note +2/32 at 2.17% and MBS prices +3/32 (.09 bp).
At 10:00 Feb factory orders expected to be up 1.4% were reported +1.3%; no reaction to the report as it was in line with forecasts. Jan orders were revised from -1.0% to -1.1%.
This afternoon the minutes from the 3/13/FOMC meeting will be released; traders and investors keen to get a look at the discussions about the economic outlook and comments concerning another QE move. Bernanke has been manipulating markets recently, using his speeches to talk rates down while at the same time trying to talk the economy up a little. Never had a Fed chief doing as much manipulation to keep long term rates from increasing. Not too sure if that is good or bad; nevertheless that is what he has been doing for the past couple of months. On one hand keeping short rates lower, on the other continuing to discount any inflationary expectations. Bernanke clearly realizes he is the Lone Ranger out there trying to keep the economy moving forward with very low interest rates while Congress is completely impotent and can’t find any common ground to add fiscal incentives. As long as Bernanke holds out the carrot of another easing if the economy were to reverse course he can keep longer dated treasuries and mortgage rates low; he is saying the economy is recovering with soft spots still there, however he insists if necessary he will ease further. The real question is; can he keep mortgage rates under 4.00%?
Technically, the 10 yr yield is trading below its 20 day average for the first time since early March. 30 yr MBS is trading above its 20 day average and working on its 40 day average. The 10 yr still is having a problem getting below 2.15%. With March employment data on Friday we are not expecting much major change in the bond and mortgage markets until the data hits. Tomorrow ADP will come with its private job estimate; recently the ADSP data has been close to what the BLS reports.
A quiet start in the bond market this morning but helped a little with stock indexes looking weaker into the open at 9:30. Yesterday treasuries and mortgage prices improved even with the stock market improving. Europe’s stock markets were lower after a couple of good days. Today’s only data, Feb factory orders, out at 10:00 were expected to jump after declining in Jan. At 9:00 this morning the 10 yr note unchanged while mortgage prices on 30 yr fixed loans up .03 bp.
March auto sales are expected to have increased as consumers were driven by high gasoline prices. Chrysler sales already out were up 35% in March on sales of small Fiat models; sales last month climbed to 163,381 cars and light trucks from 121,730 a year earlier. Sales of the Fiat 500 led Chrysler but other models also saw stronger sales. Later today the rest of the manufacturers will report; GM sales are expected to be boosted by the Chevrolet Sonic subcompact that gets 33 miles (53 kilometers) per gallon in combined city and highway driving, may report a 19% increase in March sales. A Ford executive told CNBC this morning its sales were up 5.0%. Toyota probably increased total sales by 15%, Honda sales may have increased 5.3%. A 14.5 million sales rate for March would exceed the 13.1 million pace from a year earlier and set an average rate of 14.6 million for the first quarter, ahead of analysts’ estimates for full-year deliveries. Total light-vehicle sales may rise to 1.42 million, the average of eight analysts’ estimates. That would be the highest monthly total since August 2007, according to researcher Autodata Corp.
At 9:30 the DJIA opened -16, 10 yr note +2/32 at 2.17% and MBS prices +3/32 (.09 bp).
At 10:00 Feb factory orders expected to be up 1.4% were reported +1.3%; no reaction to the report as it was in line with forecasts. Jan orders were revised from -1.0% to -1.1%.
This afternoon the minutes from the 3/13/FOMC meeting will be released; traders and investors keen to get a look at the discussions about the economic outlook and comments concerning another QE move. Bernanke has been manipulating markets recently, using his speeches to talk rates down while at the same time trying to talk the economy up a little. Never had a Fed chief doing as much manipulation to keep long term rates from increasing. Not too sure if that is good or bad; nevertheless that is what he has been doing for the past couple of months. On one hand keeping short rates lower, on the other continuing to discount any inflationary expectations. Bernanke clearly realizes he is the Lone Ranger out there trying to keep the economy moving forward with very low interest rates while Congress is completely impotent and can’t find any common ground to add fiscal incentives. As long as Bernanke holds out the carrot of another easing if the economy were to reverse course he can keep longer dated treasuries and mortgage rates low; he is saying the economy is recovering with soft spots still there, however he insists if necessary he will ease further. The real question is; can he keep mortgage rates under 4.00%?
Technically, the 10 yr yield is trading below its 20 day average for the first time since early March. 30 yr MBS is trading above its 20 day average and working on its 40 day average. The 10 yr still is having a problem getting below 2.15%. With March employment data on Friday we are not expecting much major change in the bond and mortgage markets until the data hits. Tomorrow ADP will come with its private job estimate; recently the ADSP data has been close to what the BLS reports.
Monday, April 2, 2012
Mortgage Rates--
Treasuries and mortgage markets opened slightly better this morning ahead of two reports at 10:00. Stock indexes started a little soft. At 8:00 the 10 yr +4/32 at 2.20% -1 bp and 30 yr MBSs +3/32 (.09 bp). Friday interest rates increased slightly on end of quarter adjustments and a jump in consumer confidence; Feb personal spending also exceeded forecasts up 0.8%.
Bloomberg News in a recent survey of primary dealers concluded the yield on the benchmark 10-year note will finish 2012 at 2.48%, two weeks ago the 10 shot to 2.40% but quickly retreated and now is finding some minor demand at 2.20%. That’s the same as a January poll, suggesting the market isn’t ready to declare a bear market in bonds after a 30-year bull run. The optimism that rates won’t increase much is based on the expiration of the $1T Bush tax cuts expiring at the end of the year and continued high fuel costs that will sap consumer spending and stymy economic growth. Also in play, Bernanke has in the past said the Fed would do another QE if the economy rolled over.
Primary dealer holdings of U.S. government debt rose to $91B last month, from a net bet against the securities of $53.4B last May, according to the Fed. In the survey, 14 say the odds are that the Fed will need a third round of bond purchases, or quantitative easing, to bolster the economy. Yield forecasts at the primary dealers range from 2.0% at RBS, Scotia Capital and Barclays Capital to 3.0% at Deutsche Bank AG, Jefferies & Co. and BMO Financial. Even if the most bearish forecasts prove true, yields would remain below the average of 3.85% over the past decade, 4.98% over the past 20 years and 6.48% since 1982. Primary dealers’ track record of longer term forecasts isn’t any better than most other forecasts; the dealers at the moment are betting on an economic decline in the second half of this year. Nevertheless in the moment its worth considering. We have contended interest rates will not increase much this year, but at the same time we don’t expect rates to decline a lot from present levels.
At 9:30 the DJIA opened -11, the 10 yr note +9/32 at 2.18% -3 bp and 30 yr mortgage pricers8/32 (.25 bp).
At 10:00 Feb construction spending was expected up 0.5%, spending declined 1.1% and Jan was revised lower to -0.8% frm 0.1%; the decline was the biggest monthly drop since July 2011. The March ISM manufacturing index was expected at 53.0, as reported 53.4 frm 52.4 in Feb: new orders component 54.5 frm 54.9. employment index at 56.1 frm 53.2 and prices pd at 61.0 frm 61.5. The better than expected ISM data took the stock indexes off their lows and treasuries and mortgages backed off their best gains prior to the report.
The rest of the day will be watching the stock indexes, after a better ISM report the indexes are moving back to unchanged levels after the DJIA was down over 50 points prior to the report. The 10 yr note still holding a gain but is faltering momentarily at 2.15%.
Treasuries and mortgage markets opened slightly better this morning ahead of two reports at 10:00. Stock indexes started a little soft. At 8:00 the 10 yr +4/32 at 2.20% -1 bp and 30 yr MBSs +3/32 (.09 bp). Friday interest rates increased slightly on end of quarter adjustments and a jump in consumer confidence; Feb personal spending also exceeded forecasts up 0.8%.
Bloomberg News in a recent survey of primary dealers concluded the yield on the benchmark 10-year note will finish 2012 at 2.48%, two weeks ago the 10 shot to 2.40% but quickly retreated and now is finding some minor demand at 2.20%. That’s the same as a January poll, suggesting the market isn’t ready to declare a bear market in bonds after a 30-year bull run. The optimism that rates won’t increase much is based on the expiration of the $1T Bush tax cuts expiring at the end of the year and continued high fuel costs that will sap consumer spending and stymy economic growth. Also in play, Bernanke has in the past said the Fed would do another QE if the economy rolled over.
Primary dealer holdings of U.S. government debt rose to $91B last month, from a net bet against the securities of $53.4B last May, according to the Fed. In the survey, 14 say the odds are that the Fed will need a third round of bond purchases, or quantitative easing, to bolster the economy. Yield forecasts at the primary dealers range from 2.0% at RBS, Scotia Capital and Barclays Capital to 3.0% at Deutsche Bank AG, Jefferies & Co. and BMO Financial. Even if the most bearish forecasts prove true, yields would remain below the average of 3.85% over the past decade, 4.98% over the past 20 years and 6.48% since 1982. Primary dealers’ track record of longer term forecasts isn’t any better than most other forecasts; the dealers at the moment are betting on an economic decline in the second half of this year. Nevertheless in the moment its worth considering. We have contended interest rates will not increase much this year, but at the same time we don’t expect rates to decline a lot from present levels.
At 9:30 the DJIA opened -11, the 10 yr note +9/32 at 2.18% -3 bp and 30 yr mortgage pricers8/32 (.25 bp).
At 10:00 Feb construction spending was expected up 0.5%, spending declined 1.1% and Jan was revised lower to -0.8% frm 0.1%; the decline was the biggest monthly drop since July 2011. The March ISM manufacturing index was expected at 53.0, as reported 53.4 frm 52.4 in Feb: new orders component 54.5 frm 54.9. employment index at 56.1 frm 53.2 and prices pd at 61.0 frm 61.5. The better than expected ISM data took the stock indexes off their lows and treasuries and mortgages backed off their best gains prior to the report.
The rest of the day will be watching the stock indexes, after a better ISM report the indexes are moving back to unchanged levels after the DJIA was down over 50 points prior to the report. The 10 yr note still holding a gain but is faltering momentarily at 2.15%.
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