No movement again early this morning in the bond and MBS markets but losing some ground at 9:30. The 1.86% 10 yr wall has held since March 24th, no additional improvement but equally no selling. Greece is in the headlights; after a few months of not much interest in Greece markets are now fully focused on Greek debt discussions with varying fears and concerns. Another critical meeting set for Friday, the government looking under every rock to find more money ordering local governments to transfer funds to the central bank will keep the country afloat until the end of May. The new Greek government an anti-austerity coalition government has repeatedly expressed confidence that a deal to free bailout disbursements was imminent, however so far they appear to be fooling themselves as the IMF and EU officials are not nearly so confident. The ultimate question is, if Greece defaults and has to exit the EU will it lead to more EU countries defaulting and leaving, destroying the EU as currently constructed. The European Central Bank is studying measures to rein in emergency funding for Greek banks as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.
There are no data points again today. The bond and mortgage markets opened flat again while early trading in US stock indexes pointed to another positive open this morning. Q1 earnings also in play with most reports so far as good or better than expected. In the old normal the bond markets would be pressured on improving stocks; these days with global economic issues somewhat trumping the domestic conditions the bond market isn’t seeing any selling as investors continue worrying over world economic events. China in the last two market days caused additional confusion with two announcements; Friday opening the door to make it easier for investors to short their stock markets on concerns a bubble may be forming. Yesterday lowering bank reserve requirements to push more lending to consumers and businesses.
The Fed also in play for investors attempting to handicap when the Fed will begin increasing interest rates. When is the guessing game; not in June in our view and possibly no increase this year pending the economy’s performance in the next two months. Even when the Fed starts Fed officials including Yellen have made in clear (as clear as the Fed can) that the pace of increase will be slow; meaning the Fed isn’t about to raise the FF rate at each successive meeting after it starts. Yesterday William C. Dudley stressed that once they start to lift rates above zero, “we will simply be moving from an extremely accommodative monetary policy to one that is only slightly less so.” Last week Atl. Fed President Dennis Lockhart saying, “I would lean to a little later versus a little earlier.” The timing and pace of increases depends entirely on economic performance and inflation expectations; all the talk and all the forecasts depend solely on those two things.
The DJIA opened +65, NASDAQ +36, S&P +9. 10 yr at 9:30 1.90% +1 bp, 30 yr MBS price -6 bps. By 10:00 the stock indexes lost some of the opening gains.
The 10 and 3.0 FNMA coupon still hanging tough in their respective ranges. Our work is continuing to hold slightly bullish patterns however each day with no improvements at these levels becomes increasingly more concerning. Patience is needed now, as long as the 10 holds at 1.92% on selling the potential remains positive, a move above that rate would change our momentary bullish outlook. The last week the bond market has been influenced more by global news rather than domestic data; tomorrow March existing home sales and Thursday March new home sales will turn traders inward to US economic news. Take a minute or two and look at the charts above, pictures worth a lot more than of my words.