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Monday, June 11, 2012
Mortgage Rates
Very early this morning the 10 yr note price traded down 10/32 at 1.66% but by 9:00 down -3/32 at 1.64% (the 10 hit 1.72% briefly on the news announcement); mortgage prices at 9:00 generally unchanged. Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it. The most recent surveys showed the main party opposing the terms of its bailout vying for first place.
As the clock ticked on, the positive take over Spain’s cash infusion began to wear off; the stock indexes t 8:00 were +100 on the DJIA, at 9:00 +69. The bond market lost some of its price declines; while the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses. Next week is a huge weak for the US and global markets. On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say. On Monday the 18th there is a G-20 meeting scheduled I Mexico that will focus on Europe’s mess. On Tuesday and Wednesday (19th and 20th) the FOMC meets an Wednesday the policy statement and Bernanke’s press conference. There is still many that believe the Fed will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month.
The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with markets pulling back from the highs in stock markets. It is a step but a baby one at best, and indicates there are more troubles ahead. Attention now will turn to Italy, the third largest economy in the EU. The bailout helped move Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Italy’s shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate. Italy has 2 trillion euros of debt, more as a share of its economy than any advanced nation after Greece and Japan. Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep frm defaulting.
Re-capping the reaction to the Spanish bailout; initially there was euphoria, the US 10 yr note last night hit 1.72% frm 1.64% close last Friday; it lasted about a minute or so before it backed down. Europe’s stock markets are better but off their highs, the US stock indexes also off the best pre-opening levels at 9:30. The Spain deal is a slight plus but not much and now the spotlight will also turn onto Italy and of course the Greek election next Sunday.
At 9:30 the DJIA opened +75, NASDAQ +24; the 10 yr note rate at 1.65% +1 bp with 30 yr mortgage prices -4/32 (.12 bp).
Expect continued volatility today in the US markets. This week Treasury will auction 3 yr, 10 yr an 30 yr issues to borrow $66B, the same amount Treasury has gone for over the last few months. Economic data; the calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks. There isn’t any data out today.
Very early this morning the 10 yr note price traded down 10/32 at 1.66% but by 9:00 down -3/32 at 1.64% (the 10 hit 1.72% briefly on the news announcement); mortgage prices at 9:00 generally unchanged. Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it. The most recent surveys showed the main party opposing the terms of its bailout vying for first place.
As the clock ticked on, the positive take over Spain’s cash infusion began to wear off; the stock indexes t 8:00 were +100 on the DJIA, at 9:00 +69. The bond market lost some of its price declines; while the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses. Next week is a huge weak for the US and global markets. On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say. On Monday the 18th there is a G-20 meeting scheduled I Mexico that will focus on Europe’s mess. On Tuesday and Wednesday (19th and 20th) the FOMC meets an Wednesday the policy statement and Bernanke’s press conference. There is still many that believe the Fed will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month.
The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with markets pulling back from the highs in stock markets. It is a step but a baby one at best, and indicates there are more troubles ahead. Attention now will turn to Italy, the third largest economy in the EU. The bailout helped move Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Italy’s shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate. Italy has 2 trillion euros of debt, more as a share of its economy than any advanced nation after Greece and Japan. Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep frm defaulting.
Re-capping the reaction to the Spanish bailout; initially there was euphoria, the US 10 yr note last night hit 1.72% frm 1.64% close last Friday; it lasted about a minute or so before it backed down. Europe’s stock markets are better but off their highs, the US stock indexes also off the best pre-opening levels at 9:30. The Spain deal is a slight plus but not much and now the spotlight will also turn onto Italy and of course the Greek election next Sunday.
At 9:30 the DJIA opened +75, NASDAQ +24; the 10 yr note rate at 1.65% +1 bp with 30 yr mortgage prices -4/32 (.12 bp).
Expect continued volatility today in the US markets. This week Treasury will auction 3 yr, 10 yr an 30 yr issues to borrow $66B, the same amount Treasury has gone for over the last few months. Economic data; the calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks. There isn’t any data out today.
Friday, June 8, 2012
Mortgage Rates
The stock market weaker this morning, the bond market strong. Yesterday the 10 yr note yield climbed to the support area at 1.70% (1.69%) and held; mortgage markets were very strong yesterday outpacing the 10 yr note in price improvement. This morning the 10 yr note started up 23/32 at 1.56% -8 bp and mortgage prices at 8:30 up 8/32 (.25 bp) frm yesterday’s close. In a running timeline; at 9:00 the 10 yr 1.57% -7bp, mortgage prices on 30s +8/32 (.25 bp). At 9:30 the DJIA opened -45, NASDAQ -12; the 10 yr note at 1.57% -7 bp and 30 yr MBS price +6/32 (.18 bp) frm yesterday’s strong close.
It isn’t much of a secret that the global economy is slowing rapidly due primarily to the Europe debt crisis; China cut rates yesterday for the first time since 2008 to spur growth, on June 5th Australia cut its base rate but the ECB still unable to act as it is impotent in dealing with Europe’s debt mess, didn’t lower rates but said the door is open. Here in the US yesterday Bernanke testified in Congress and said the Fed policy makers will discuss later this month whether to do more to spur growth, though he said the steps they could take may have “diminishing returns.” The FOMC meeting is on June 19th and 20th with increasing numbers believing the Fed will come up with some easing plan----but to what avail? The Fed is out of bullets, even Bernanke is sending that message with is “diminishing return” comment.
JPMorgan Chase economists say the global economy will grow 1.7% this quarter and 2% in Q3, after expanding at an annual pace of 2.5% in the final quarter of 2011. Lower interest rates that may occur if the Fed does more easing will have minimal impact on the economy and growth; rates are not the issue now, it is about fear and uncertainty that Europe may not solve its debt problems without help from non-Europe countries, so far there is no appetite at the IMF to help the fumbling leaders in the EU and ECB. Germany holds the keys in Europe and isn’t likely to budge on its conviction that austerity cuts in the debt ridden countries of Spain, Greece, Portugal, Ireland and next up Italy. Checkmate! Today a European Central Bank Governing Council member said that while the ECB still has tools to help Europe’s economy withstand the crisis it won’t act in isolation from other European institutions. Over the weekend Euro finance chiefs plan weekend talks on a potential aid request frm Spain to shore up the nation’s lenders.
Presently the idea the Fed will likely ease again is seen as an extension of Operation Twist that is set to end at the end of the month. The Fed selling short dated maturities and simultaneously buying long dated maturities in an effort to keep long rates low. Is it needed to keep rates low? Right now no. With global money flowing into US treasures US 10 yr and 30 yr maturities will continue to stay low, however the Fed is the only game in town; Congress and the Administration are not functioning, unable to add fiscal help.
For at least the next two weeks interest rate and stock markets will likely trade in their present levels; not expecting new lows in rates, nor much increase. Starting on June 17th through June 20th, four days that will likely set the tone for financial markets through the rest of the summer. On the 17th Greece will vote on what is in a way a referendum on whether it stays or leaves the Union; right now polls indicate Greece will vote to stay. On the 18th there is a G-20 meeting in Mexico that will focus on the global economic decline and possibly a unified global plan to alleviate the debt crisis in Europe that is rapidly breaking the backs of most banks in the region. A few reports floating now that to take Europe away from the cliff it stands on, it will require coordinated global assistance. On the 19th and 20th the FOMC meeting with its policy statement on the 20th and Bernanke’s press conference.
No major data points today; at 8:30 the April US trade deficit was reported at -$50.1B about what was expected; March deficit was revised slightly higher to -$52.6B from -$51.8B. At 10:00 April wholesale inventories were thought to be up 0.5%, as reported inventories increased 0.6%, sales were up 1.1%, there is a 1.17 month supply based on sales.
As long as the 10 yr note can trade under 1.70% the near outlook for rates remains positive; that said though, as noted above, we are not expecting new lows in rates over the next couple of weeks. Mortgage prices continue to hold positive outlook; to change that the 30 yr FNMA 3.0 coupon would have to close below 104-3/32 (104.09 bp), presently 104-30/32 (104.93 bp) on the July coupon. We expect choppy two way trading over the next two weeks with little overall change in rates.
The stock market weaker this morning, the bond market strong. Yesterday the 10 yr note yield climbed to the support area at 1.70% (1.69%) and held; mortgage markets were very strong yesterday outpacing the 10 yr note in price improvement. This morning the 10 yr note started up 23/32 at 1.56% -8 bp and mortgage prices at 8:30 up 8/32 (.25 bp) frm yesterday’s close. In a running timeline; at 9:00 the 10 yr 1.57% -7bp, mortgage prices on 30s +8/32 (.25 bp). At 9:30 the DJIA opened -45, NASDAQ -12; the 10 yr note at 1.57% -7 bp and 30 yr MBS price +6/32 (.18 bp) frm yesterday’s strong close.
It isn’t much of a secret that the global economy is slowing rapidly due primarily to the Europe debt crisis; China cut rates yesterday for the first time since 2008 to spur growth, on June 5th Australia cut its base rate but the ECB still unable to act as it is impotent in dealing with Europe’s debt mess, didn’t lower rates but said the door is open. Here in the US yesterday Bernanke testified in Congress and said the Fed policy makers will discuss later this month whether to do more to spur growth, though he said the steps they could take may have “diminishing returns.” The FOMC meeting is on June 19th and 20th with increasing numbers believing the Fed will come up with some easing plan----but to what avail? The Fed is out of bullets, even Bernanke is sending that message with is “diminishing return” comment.
JPMorgan Chase economists say the global economy will grow 1.7% this quarter and 2% in Q3, after expanding at an annual pace of 2.5% in the final quarter of 2011. Lower interest rates that may occur if the Fed does more easing will have minimal impact on the economy and growth; rates are not the issue now, it is about fear and uncertainty that Europe may not solve its debt problems without help from non-Europe countries, so far there is no appetite at the IMF to help the fumbling leaders in the EU and ECB. Germany holds the keys in Europe and isn’t likely to budge on its conviction that austerity cuts in the debt ridden countries of Spain, Greece, Portugal, Ireland and next up Italy. Checkmate! Today a European Central Bank Governing Council member said that while the ECB still has tools to help Europe’s economy withstand the crisis it won’t act in isolation from other European institutions. Over the weekend Euro finance chiefs plan weekend talks on a potential aid request frm Spain to shore up the nation’s lenders.
Presently the idea the Fed will likely ease again is seen as an extension of Operation Twist that is set to end at the end of the month. The Fed selling short dated maturities and simultaneously buying long dated maturities in an effort to keep long rates low. Is it needed to keep rates low? Right now no. With global money flowing into US treasures US 10 yr and 30 yr maturities will continue to stay low, however the Fed is the only game in town; Congress and the Administration are not functioning, unable to add fiscal help.
For at least the next two weeks interest rate and stock markets will likely trade in their present levels; not expecting new lows in rates, nor much increase. Starting on June 17th through June 20th, four days that will likely set the tone for financial markets through the rest of the summer. On the 17th Greece will vote on what is in a way a referendum on whether it stays or leaves the Union; right now polls indicate Greece will vote to stay. On the 18th there is a G-20 meeting in Mexico that will focus on the global economic decline and possibly a unified global plan to alleviate the debt crisis in Europe that is rapidly breaking the backs of most banks in the region. A few reports floating now that to take Europe away from the cliff it stands on, it will require coordinated global assistance. On the 19th and 20th the FOMC meeting with its policy statement on the 20th and Bernanke’s press conference.
No major data points today; at 8:30 the April US trade deficit was reported at -$50.1B about what was expected; March deficit was revised slightly higher to -$52.6B from -$51.8B. At 10:00 April wholesale inventories were thought to be up 0.5%, as reported inventories increased 0.6%, sales were up 1.1%, there is a 1.17 month supply based on sales.
As long as the 10 yr note can trade under 1.70% the near outlook for rates remains positive; that said though, as noted above, we are not expecting new lows in rates over the next couple of weeks. Mortgage prices continue to hold positive outlook; to change that the 30 yr FNMA 3.0 coupon would have to close below 104-3/32 (104.09 bp), presently 104-30/32 (104.93 bp) on the July coupon. We expect choppy two way trading over the next two weeks with little overall change in rates.
Thursday, June 7, 2012
Mortgage Rates
Weekly jobless claims this morning were better than expected, at least on the headline; claims fell 12K to 377K against a decline of 4K expected, but last week’s claims were revised higher. Claims last week were reported at 383K, today revised to 389K; continuing claims increased from 3.259 mil to 3.293 mil, the 4 wk average up 4K. Prior to the 8:30 data the 10 yr note traded -2/32 and mortgage prices were unchanged, the DJIA futures were up 64; the initial reaction sent the 10 yr up 5/32 and mortgage prices on 30 yr fixed up 4/32 (.12 bp).
In an unexpected move, China cut its interest rates today, the first cut since 2008. Concerns spreading that Europe’s inability to effectively deal with its debt mess is dragging down the entire global economy was the reason for the cut. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31% from 6.56%. Banks can offer a 20% discount to the benchmark lending rate, the Peoples Bank of China said, widening from 10%. Today’s move signals policy makers are concerned that the cost of borrowing is crimping companies’ spending and holding back expansion in the world’s second-biggest economy. The State Council warned May 23 that downside risks to growth are rising and three bank officials said the nation’s biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes.
The Bank of England left its asset-purchase program on hold as the threat from above-target inflation overrode policy makers’ concern that the euro area’s debt crisis has weakened economic growth in the U.K.
At 10:00 Ben Bernanke is beginning his testimony at the Joint Economic Committee in Congress. While we still hold the Fed won’t do another easing move, the markets are increasing the bets the Fed will do another easing. China’s easing move today is adding to that outlook. We cannot rationalize the reason for easing because there is no evidence that lowering interest rates (assuming an easing would actually accomplish that) will have any impact on the economy. Nevertheless we have to go with the flow and right now there is an increasing belief the fed will announce another easing when the FOMC meets on June19 and 20. Yesterday two Fed officials commented that the Fed might consider some sort of ease, possibly extending Operation Twist that is scheduled to expire at the end of the month. The Twist, the Fed sells short-dated maturities while simultaneously buying long dated maturities like 5, 10 and 30 yr terms. Atlanta Fed Pres. Lockhart said yesterday the Fed could move, then yesterday afternoon Federal Reserve Vice Chairman Janet Yellen said that stalled improvement in the labor market and weakening financial conditions may lead the central bank to boost its record monetary easing.
That China in essence eased today is increasing the idea that central bankers are about to ease further to fend off another global recession as Europe is sinking all economies. Not much new from Europe this morning; Spain was able to sell debt at its auction today, lessening the impact of comments from an official yesterday saying Spain has been cut out of the debt markets and asked for assistance from the ECB. The clock is ticking louder for Europe to get some cohesive plan on place soon; unless there is a plan acceptable to all within the next three or four months the outlook for the EU isn’t good. Greece will vote on the 17th while the G-20 meeting is scheduled to begin on 18th.
At 9:30 the DJIA opened +86, NASDAQ +28; the 10 yr after trading slightly better early down 5/32 at 1.68% +2 bp and 30 yr MBSs -4/32 (.12 bp) after being up 4/32 at 9:00 am.
Bernanke’s prepared opening remarks and answers to questions at his testimony will set the tone the rest of the day. At 3:00 April consumer credit will be reported, credit is expected to have expanded by $12.7B.
Weekly jobless claims this morning were better than expected, at least on the headline; claims fell 12K to 377K against a decline of 4K expected, but last week’s claims were revised higher. Claims last week were reported at 383K, today revised to 389K; continuing claims increased from 3.259 mil to 3.293 mil, the 4 wk average up 4K. Prior to the 8:30 data the 10 yr note traded -2/32 and mortgage prices were unchanged, the DJIA futures were up 64; the initial reaction sent the 10 yr up 5/32 and mortgage prices on 30 yr fixed up 4/32 (.12 bp).
In an unexpected move, China cut its interest rates today, the first cut since 2008. Concerns spreading that Europe’s inability to effectively deal with its debt mess is dragging down the entire global economy was the reason for the cut. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31% from 6.56%. Banks can offer a 20% discount to the benchmark lending rate, the Peoples Bank of China said, widening from 10%. Today’s move signals policy makers are concerned that the cost of borrowing is crimping companies’ spending and holding back expansion in the world’s second-biggest economy. The State Council warned May 23 that downside risks to growth are rising and three bank officials said the nation’s biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes.
The Bank of England left its asset-purchase program on hold as the threat from above-target inflation overrode policy makers’ concern that the euro area’s debt crisis has weakened economic growth in the U.K.
At 10:00 Ben Bernanke is beginning his testimony at the Joint Economic Committee in Congress. While we still hold the Fed won’t do another easing move, the markets are increasing the bets the Fed will do another easing. China’s easing move today is adding to that outlook. We cannot rationalize the reason for easing because there is no evidence that lowering interest rates (assuming an easing would actually accomplish that) will have any impact on the economy. Nevertheless we have to go with the flow and right now there is an increasing belief the fed will announce another easing when the FOMC meets on June19 and 20. Yesterday two Fed officials commented that the Fed might consider some sort of ease, possibly extending Operation Twist that is scheduled to expire at the end of the month. The Twist, the Fed sells short-dated maturities while simultaneously buying long dated maturities like 5, 10 and 30 yr terms. Atlanta Fed Pres. Lockhart said yesterday the Fed could move, then yesterday afternoon Federal Reserve Vice Chairman Janet Yellen said that stalled improvement in the labor market and weakening financial conditions may lead the central bank to boost its record monetary easing.
That China in essence eased today is increasing the idea that central bankers are about to ease further to fend off another global recession as Europe is sinking all economies. Not much new from Europe this morning; Spain was able to sell debt at its auction today, lessening the impact of comments from an official yesterday saying Spain has been cut out of the debt markets and asked for assistance from the ECB. The clock is ticking louder for Europe to get some cohesive plan on place soon; unless there is a plan acceptable to all within the next three or four months the outlook for the EU isn’t good. Greece will vote on the 17th while the G-20 meeting is scheduled to begin on 18th.
At 9:30 the DJIA opened +86, NASDAQ +28; the 10 yr after trading slightly better early down 5/32 at 1.68% +2 bp and 30 yr MBSs -4/32 (.12 bp) after being up 4/32 at 9:00 am.
Bernanke’s prepared opening remarks and answers to questions at his testimony will set the tone the rest of the day. At 3:00 April consumer credit will be reported, credit is expected to have expanded by $12.7B.
Wednesday, June 6, 2012
Mortgage Rates
Treasuries and mortgages started weaker this morning but managed to crawl back to unchanged by 8:45. Early this morning the DJIA futures traded up 114 points, by 8:45 up 64 points. At 8:30 revisions to Q1 productivity and unit labor costs; productivity was revised to -0.9% frm -0.5% reported on the advance report last month, consensus was for -0.7%, unit labor costs were revised from +2.0% to +1.3%, consensus was for +2.2%. The bond and mortgage markets continued to improve as stock indexes edged back off the early highs; by 9:00 the 10 yr note +4/32 and MBS prices +4/32 (.12 bp) frm yesterday’s closes. By 9:30 the DJIA opened +84, NASDAQ +23; the 10 yr note lost ground, -5/32 at 1.59% +2 bp and MBS 30 yr price -2/32 (.06 bp); some volatility already this morning.
ECB’s Draghi said the economic outlook in the euro area faces “increased downside risks.” The ECB left interest rates unchanged at its meeting today. With European governments struggling to fix a crisis that’s hampering Spain and could force Greece out of the euro, economists say the ECB may soon be forced to lower rates and introduce more liquidity support for banks. “We continue to expect the euro-area economy to recover gradually,” Draghi said at his press conference. Draghi said officials will extend their offerings of unlimited cash until the start of 2013 for periods up to three months as they try to head off risks stemming from the euro region debt crisis. “We have decided to continue our main refinancing at fixed rate, full allotment for as long as necessary” and at least until January. German stocks pared their advance after Draghi’ s comments, also weakening the US indexes prior to the 9:30 open.
The weekly MBA mortgage applications out this morning; the overall index up 1.3%. The purchase index fell 1.8% in the June 1 week and is back at its lowest level since mid-April. Low rates are a plus for purchase demand and are definitely stimulating refinancing activity. The refinance index rose 2.0% in the week and is at its highest level since February. Refinancing made up more than 3/4 of the week's mortgage activity. The week's average 30-year fixed rate is a record low of 3.87 percent (conforming balances under $417,500).
At 2:00 this afternoon the Fed’s beige Book will be released. Always gets attention, the Book is used at the FOMC meeting in two weeks. Tomorrow Fed chief Bernanke will testify at the Joint Economic Committee in Congress. Markets will look ahead to his testimony and likely will not see a lot of change today in the bond market.
Both stocks and bonds are continuing their corrections to over extended levels; stock indexes were very oversold while the bond and mortgage markets equally overbought. There isn’t any major changes in the overall sentiment, just consolidating and waiting for news out of Europe. Greece elections on the 17th and Spain’s increasing bank problems. No progress in Europe, a lot of meetings but no consensus on what to do to keep the EU together and come to any plan to deal with growing debt issues. The stock market remains bearish and the bond and mortgage markets bullish.
After a little two way trade in the bond market early this morning, the 10 yr and mortgages are weakening as stock indexes continue to rally. In the U.S., Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.” “There is capacity to do more, so it is an option on the table,” he remarked.
Treasuries and mortgages started weaker this morning but managed to crawl back to unchanged by 8:45. Early this morning the DJIA futures traded up 114 points, by 8:45 up 64 points. At 8:30 revisions to Q1 productivity and unit labor costs; productivity was revised to -0.9% frm -0.5% reported on the advance report last month, consensus was for -0.7%, unit labor costs were revised from +2.0% to +1.3%, consensus was for +2.2%. The bond and mortgage markets continued to improve as stock indexes edged back off the early highs; by 9:00 the 10 yr note +4/32 and MBS prices +4/32 (.12 bp) frm yesterday’s closes. By 9:30 the DJIA opened +84, NASDAQ +23; the 10 yr note lost ground, -5/32 at 1.59% +2 bp and MBS 30 yr price -2/32 (.06 bp); some volatility already this morning.
ECB’s Draghi said the economic outlook in the euro area faces “increased downside risks.” The ECB left interest rates unchanged at its meeting today. With European governments struggling to fix a crisis that’s hampering Spain and could force Greece out of the euro, economists say the ECB may soon be forced to lower rates and introduce more liquidity support for banks. “We continue to expect the euro-area economy to recover gradually,” Draghi said at his press conference. Draghi said officials will extend their offerings of unlimited cash until the start of 2013 for periods up to three months as they try to head off risks stemming from the euro region debt crisis. “We have decided to continue our main refinancing at fixed rate, full allotment for as long as necessary” and at least until January. German stocks pared their advance after Draghi’ s comments, also weakening the US indexes prior to the 9:30 open.
The weekly MBA mortgage applications out this morning; the overall index up 1.3%. The purchase index fell 1.8% in the June 1 week and is back at its lowest level since mid-April. Low rates are a plus for purchase demand and are definitely stimulating refinancing activity. The refinance index rose 2.0% in the week and is at its highest level since February. Refinancing made up more than 3/4 of the week's mortgage activity. The week's average 30-year fixed rate is a record low of 3.87 percent (conforming balances under $417,500).
At 2:00 this afternoon the Fed’s beige Book will be released. Always gets attention, the Book is used at the FOMC meeting in two weeks. Tomorrow Fed chief Bernanke will testify at the Joint Economic Committee in Congress. Markets will look ahead to his testimony and likely will not see a lot of change today in the bond market.
Both stocks and bonds are continuing their corrections to over extended levels; stock indexes were very oversold while the bond and mortgage markets equally overbought. There isn’t any major changes in the overall sentiment, just consolidating and waiting for news out of Europe. Greece elections on the 17th and Spain’s increasing bank problems. No progress in Europe, a lot of meetings but no consensus on what to do to keep the EU together and come to any plan to deal with growing debt issues. The stock market remains bearish and the bond and mortgage markets bullish.
After a little two way trade in the bond market early this morning, the 10 yr and mortgages are weakening as stock indexes continue to rally. In the U.S., Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.” “There is capacity to do more, so it is an option on the table,” he remarked.
Monday, June 4, 2012
Mortgage Rates
Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report. The 10 yr note and 30 yr bond are falling in rate on increasing global moves to safety. Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy; China is slowing quickly and India is now showing cracks in its economy. In the US we are doing better for the moment but also being pulled down by the global softening. Investors of all sizes are simply parking money in sovereign debt, in the US, Germany and other AAA rated sovereign debt (the US rating is AA+). Investors no longer looking to a return on investment, just return on the principal.
As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. There is an increasing cry in Europe from the debt ridden countries to institute euro bonds. With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds. Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.
Treasuries and mortgage markets are technically overbought while the US equity market is oversold. A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels. Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets. There is however no reason to expect interest rates will increase much given the underlying fundamentals.
The DJIA opened +15, NASDAQ +18; the 10 yr at 9:30 -20/32 at 1.53% +7 bp and 30 yr MBS prices -6/32 (.18 bp).
At 10:00 the data for the day, April factory orders expected +0.1%, took another dive to -0.6% and March orders were revised to -1.9% frm 1.5% The reaction turned stock indexes down from slight gains. The 10 yr was -20/32, it bounced up to -14/32.
There isn’t a lot of key economic measurements this week; weekly clams and the May ISM services sector lead the headlines. We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week. Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10 yr easily broke 1.50%. One media guru was out today conjecturing that the 10 yr could go to 1.00% before the rate markets turn around. We can’t get on board with that however. Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds. If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap. That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.
Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report. The 10 yr note and 30 yr bond are falling in rate on increasing global moves to safety. Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy; China is slowing quickly and India is now showing cracks in its economy. In the US we are doing better for the moment but also being pulled down by the global softening. Investors of all sizes are simply parking money in sovereign debt, in the US, Germany and other AAA rated sovereign debt (the US rating is AA+). Investors no longer looking to a return on investment, just return on the principal.
As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. There is an increasing cry in Europe from the debt ridden countries to institute euro bonds. With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds. Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.
Treasuries and mortgage markets are technically overbought while the US equity market is oversold. A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels. Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets. There is however no reason to expect interest rates will increase much given the underlying fundamentals.
The DJIA opened +15, NASDAQ +18; the 10 yr at 9:30 -20/32 at 1.53% +7 bp and 30 yr MBS prices -6/32 (.18 bp).
At 10:00 the data for the day, April factory orders expected +0.1%, took another dive to -0.6% and March orders were revised to -1.9% frm 1.5% The reaction turned stock indexes down from slight gains. The 10 yr was -20/32, it bounced up to -14/32.
There isn’t a lot of key economic measurements this week; weekly clams and the May ISM services sector lead the headlines. We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week. Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10 yr easily broke 1.50%. One media guru was out today conjecturing that the 10 yr could go to 1.00% before the rate markets turn around. We can’t get on board with that however. Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds. If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap. That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.
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