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Thursday, February 09, 2012
Prior to 8:00 this morning treasuries were generally unchanged; at 8:00 news wires lit up reporting that Greece has passed the austerity plans necessary to get the funds to avoid default on March 20th. The reaction sent the 10 yr note yield to 2.04%, however the MBS markets held firm at unchanged. While it appears that a deal within Greece on cutting spending has been accomplished, after all the false starts over the last six months markets are waiting for confirmation from the troika (ECB, IMF, and EU). After 45 minutes the ECB said it had gotten the word that a deal has been reached. European stocks rose for the first time in four days, U.S. index futures gained and the euro strengthened; by 9:00 the 10 yr note yield increased to 2.05% and a little pressure on prices on MBSs. Greece faces a 14.5 billion-euro bond payment on March 20 and is struggling to obtain financing to avert a collapse of the economy that could spark a new round of contagion in the euro area.
The ECB left interest rates unchanged at its policy meeting today; ECB chief Mario Draghi said the economic outlook faces “downside risks.” “The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today. Last month, he said the outlook was subject to “substantial” downside risks. The euro currency rallied on the Greek news and no change in interest rates but it was short lived and the currency backed off its strongest levels against the dollar, still however a little better at 9:00.
Here in the US weekly jobless claims this morning were much better than what was expected, claims were thought to have increased a little last week; claims declined 15K to a new recent low of 358K new filings. Continuing claims at 3.51 mil were up from 3.45 mil, continuing claims have been about this level for weeks.
The 10 yr note yield jumped to 2.06% on the Greek news then found support for the moment at chart support 2.05%. The equity market opened a little stronger at 9:30 on the news in Greece and the unexpected decline in weekly jobless claims. The DJIA opened +15, the 10 yr 2.04% and MBS prices down just slightly (-3/32 (.09 bp) and unchanged from 9:30 yesterday.
At 10:00 Dec wholesale inventories, expected +0.4%; was reported up 1.0%; the higher inventory levels will likely increase Q4 GDP a little when the preliminary report is out on the 29th.
At 1:00 the final auction this week; $16B of 30 yr bonds, yesterday’s 10 yr note met with good demand.
The market reactions on the Greek news has been rather subdued; the equity market better but not much and the interest rate markets moved to their support level (2.05% on the 10 yr) and so far have held. The MBS market slightly lower in price. Traders and investors are taking the Greek news with a little grain of salt given the number of times in the past that failed. Nevertheless there will be a deal for Greece to get the funds necessary to avoid default. For the last four sessions the 10 yr note yield has been increasing, traders were exiting those safety trades that pushed the 10 yield to 1.80%. Mortgage markets compared to treasuries have been stable with not much change while the 10 yr yield increased 25 bp from its low on Feb 1st.
Wednesday, February 08, 2012
In early trade this morning the 10 yr note yield touched 2.00% ahead of the $24B 10 yr auction later this afternoon (1:00 pm). Mortgage prices started slightly weaker; both the 10 yr and MBS prices holding well so far with no economic releases scheduled again today. Stock index futures traded slightly better prior to the open at 9:30. At 9:00 this morning, after testing support at 2.00% the 10 yr was back to 1.98% unchanged from yesterday and mortgage prices were also unchanged.
At 9:30 the DJIA opened generally unchanged (-3 points); the 10 yr note -132 at 1.98% unch and mortgage prices also unchanged. Investors should have 100% of investments in equities because of valuations and higher returns than bonds, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager.
Greece remains a major focus for markets as it struggles to come up with a debt relief plan. Greece’s prime minister delayed a meeting of Greece’s political parties again yesterday, the second delay in as many days. Greek Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after he missed another deadline to secure a second aid package. The ECB is prepared to swap its holdings of Greek government bonds to contribute to a reduction of the country’s debt burden, Dow Jones reported yesterday, citing unidentified people briefed on the talks. The agreement could reduce Greece’s debt by as much as 11 billion euros, Dow Jones said. A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. Parliament may be called to vote on the terms of the write-down on Feb. 12, state-runs Athens News Agency reported yesterday, without saying how it got the information.
Mortgage applications increased 7.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 2012. The Refinance Index increased 9.4% from the previous week. The seasonally adjusted Purchase Index increased 0.1% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 4.88%. The four week moving average is up 0.65% for the seasonally adjusted Purchase Index, while this average is up 5.72% for the Refinance Index. The refinance share of mortgage activity increased to 80.5% of total applications from 80.0% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.0% from 5.6% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05%, the lowest rate in the history of the survey, from 4.09%, with points increasing to 0.44 from 0.41 (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 4.29%, the lowest rate in the history of the survey, from 4.33%, with points increasing to 0.43 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.89%, the lowest rate in the history of the survey, from 3.96%, with points increasing to 0.78 from 0.61 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.33%, the lowest rate in the history of the survey, from 3.36%, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.91% from 2.94%, with points increasing to 0.40 from 0.39 (including the origination fee) for 80% loans.
At 1:00 Treasury auction a new 10 yr note, selling $24B of the notes. Yesterday’s 3 yr note didn’t do quite as well as previous 3 yr auctions, today’s 10 yr with the yield close to 2.00% on the current 10 yr will be a good test of demand after yields have increased over the last week. If demand is weak look for the 10yr to exceed 2.00%; a strong auction will likely rally the 10 yr and mortgages. In the meantime the bond market will likely be relatively flat this morning ahead of the auction.
MBS markets are holding well frm a technical perspective while the bellwether 10 yr note is slightly bearish, trading above its 40 day average on the yield and the relative strength index above the pivotal 50 level. That said, so far the 10 yr is holding its first support at 2.00%. The outlook for the rate markets depends on three factors; the Greek debt issues, how the stock market trades and today’s $24B 10 yr auction. As for lower rates ahead, the 10 yr has heavy lifting to do when it moves below 2.00%, there is huge resistance at 1.80%; mortgage rates don’t have much more improvement left at the moment, however there is not much likelihood mortgage rates will increase much either.
Tuesday, February 07, 2012
Very early this morning the US stock indexes were weak following Europe’s equity markets; the 10 yr note at 7:00 am -2/32. By 8:30 however the 10 yr note fell further, down 11/32 at 1.94% +4 bp, MBS prices -2/32 (.06 bp). This is another day with no economic data until 3:00 this afternoon when Dec consumer credit is reported (+$8.5B). At 1:00 Treasury will auction $32B of 3 yr notes, last month’s 3 yr auction drew the largest demand on record for a 3 yr note. A little volatility early this morning when a story hit that Greece was close to a deal to avoid default, it didn’t last long though as there were no follow-up details. No one will jump the gun on Greece’s ability to get a deal with creditors resolved given that Greek officials have constantly said a deal was close and would be completed in “a few days”. German Chancellor Angela Merkel said time was running out for Greece to accept conditions for a bailout. Meanwhile Greek Prime Minister Lucas Papademos meets political leaders today to discuss more cuts needed to get a rescue package. They have already agreed to make further cuts this year equal to 1.5% of gross domestic product, they have yet to decide how to recapitalize banks, ensure the viability of pension funds and reduce wages to increase the economy’s competitiveness. Yesterday the Prime Minister was reported to have asked for a detailed analysis from his staff on how Greece will fair if it decides to simply default. In this global economy, markets pay a lot of attention to what is occurring in Europe and China; China’s industrial output growth will probably slow this quarter as the world economy cools and the euro area’s crisis worsens, the Ministry of Industry and Information Technology said today. “The global economy is slowing down, Europe’s sovereign-debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said. German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand. Production fell 2.9% from November, when it stagnated, the Economy Ministry in Berlin said today. Economists had expected output to remain unchanged.I guess it is obvious that Europe’s debt crisis is so extreme that coming up with any solution is elusive at best. Banks won’t be able to take the haircut necessary, the ECB doesn’t have the funds to absorb much of the massive debt and the IMF won’t do much until there is some kind of assurance the EU countries can manage their budgets with huge spending cuts. In the meantime the economy in Europe is teetering on the edge and holding back what might be a solid global economic rebound. In the case of Greece, if it does default the repercussions in US markets may not be as serious as investors now believe. Estimates we hear are that the US equity market might lose 3.0% to 5.0% if Greece defaults; not good but if that were all there is likely it would be recovered quickly. Where the serious implications occur is a Greek default would likely leads to other sovereigns tossing in the towel unwinding the EU. The DJIA opened -20 at 9:30, the 10 yr note -14/32 the weakest so far at 1.95% +5 bp. MBS prices holding but likely lenders will price defensively, at 9:30 -2/32 (.06 bp).
Fed chair Bernanke will testify on the economy at 10:00 at the Senate Budget Committee.
Technically the 10 yr note is presently testing its 40 day MA at 1.95%, a close above 1.95% would support a move to 2.00%. The relative strength index is at neutral 50. Although the note looks a little soft so far today, it is unlikely that interest rates will increase much; equally as we have commented a few times, we do not believe there is a lot left in the present rally. The 10 yr has a wall at 1.80%; it is in a range between 2.00% and 1.80% and likely will stay there. Mortgage rates also confined to a 15 to 20 basis point range in rates.
Monday, February 06, 2012
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.
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
Tuesday, January 31, 2012
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.
Construction is set to begin next month on the House of Bedlam development in Bricktown. The project by USA Screenprinting owner Chris Johnson, is set to include a cafe, gift shop, 30,000 square feet of retail space and street-level parking on both sides of the Bricktown Canal.
Friday, January 27, 2012
Before 8:30 treasury markets were trading slightly weaker and stock indexes a little better, it changed after the 8:30 release of Q4 GDP. Expected at a growth rate of 3.1%, as reported +2.8%; the 10 yr note bounced up a little and mortgage prices improved and stock indexes declined. The report is the first of three over the next three months and usually gets revised when the preliminary report hits next month; nevertheless after the Fed released its weaker forecasts for growth in 2012, and 2013 on Wednesday the softer Q4 growth is getting a lot of attention this morning. If inventory builds are removed GDP was up just 0.8%. For all of 2012 growth up 1.7% compared with +3.0% in 2010. Consumer spending in Q4 was up 2.0%, economists were projecting +2.4%, Q3 up 1.7%---holiday shopping was less than estimates. Q4 savings rate declined to +3.7%, the lowest in years.
The bond and mortgage markets rallied a little on the 8:30 weaker GDP data; MBS trading was volatile with prices swinging from +.22 bp to +.09 bp; at 9:15 +.09 bp with the 10 yr treasury +4/32 at 1.93% -1 bp. At 9:30 the DJIA opened -36, the 10 yr note +6/32 to 1.92% -2 bp and mortgage prices +3/32 (.09 bp).
The final data this week at 9:55; the U. of Michigan consumer sentiment index, expected at 74.0, as reported 75.0, up frm 69.9 at the end of Dec. Current conditions at 84.2, expectations at 69.1 frm 68.4 two weeks ago, 12 month outlook 82 frm 79 two weeks ago. The sentiment and current conditions the highest since Feb 2011. There was no reaction to the data in either stock indexes of the bond markets.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said authorities are “very close” to reaching an agreement on a private-sector involvement in a Greek debt swap this month. Greece and its creditors are haggling over the terms of an accord to reduce the country’s borrowings, three months after private bondholders agreed to a 50% cut in the face value of more than 200 billion euros ($263B) of debt by voluntarily swapping bonds for new securities. Earlier this week officials were saying a deal would be resolved by today, now the talk is “in the next three days”.
Technicals looking more bullish, the 10 yr note has more to go before it runs into resistance. The rest of the day the bond and mortgage markets will take their lead from the equity markets, stock indexes at 10:00 at their worst of the day so far.
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