April is over, wasn’t a good month for investors; the drop in the DJIA almost took the index back to unchanged on the year. The bets that the dollar would continue to strengthen, that oil prices would continue to decline and bond yields would fall lower---all wrong as it turned out. The dollar/euro was expected to go to parity, two months ago trading at about $1.04, yesterday ending at $1.12, a huge swing. Crude was trading at $45.00, now $59.00. Interest rates increased in Europe, German 10 yr bund early April 0.07%%, now 0.37%. The US 10 at the beginning of April 1.86%, this morning 2.08%.
At 9:30 after dropping 195 points yesterday the DJIA opened +136, NASDAQ +34 after -82, S&P +13. The 10 at 9:30 2.07% +3 bp and 30 yr MBS price -16 bps. Earlier this morning MBS price down 24 bps. Lenders won’t be aggressive this morning as they were reticent yesterday. Tin markets exist in treasuries and even thinner in the MBS markets.
Three key data points at 10:00. April ISM manufacturing index expected at 52 frm 51.5 was at 51.5. March construction spending -0.6% against +0.4%, until now haven’t had three months down in a row since back in 2009. The U.of Michigan consumer sentiment index was expected at 96.0 came at 95.9, the best the index has been was in January at 98.1. No immediate reaction to the data at 10:10 am.
Recently we talked about how the bond market would perform once the 30 session trading range was violated; we thought volatility would immediately increase in all US financial markets. Yesterday’s intraday action clearly increased volatility in both stock indexes and rate markets. Increasing numbers of analysts are still holding out that stocks will worsen on a technical correction, so far nothing although no real gains (ex NASDAQ). Each time the indexes have a rough day, the following day there is and has been recoveries. Day traders field day; buy at the end of the session when indexes take a big hit, sell at 1:00 pm the following day. Current near term support at 2.10% on the 10 yr and 101.43 on the FNMA 3.0 May coupon ( 101.70 at 9:30). Our work is negative (bearish) now. A lot of uncertainty has oozed into markets in the last few sessions that is going to increase market volatility. Unlikely interest rates will improve unless that long-awaited and never happening stock market actually occurs. Already it has gotten old to hear the well-worn phrase; sell in May and go Away for stocks.
PRICES @ 10:10 AM
10 yr note: -17/32 (56 bp) 2.09% +5 bp
5 yr note: -9/32 (28 bp) 1.48% +6 bp
2 Yr note: -2/32 (6 bp) 0.60% +2 bp
30 yr bond: -40/32 (125 bp) 2.81% +6 bp
Libor Rates: 1 mo 0.180%; 3 mo 0.278%; 6 mo 407%; 1 yr 0.699%
30 yr FNMA 3.0 May: @9:30 101.70 -16 bp (+18 bp frm 9:30 yesterday) (how did your lender(s) do this morning?)
15 yr FNMA 3.0 May: @9:30 104.60 -9 bp (+17 bp frm 9:30 yesterday)
30 yr GNMA 3.0 May: @9:30 102.69 -3 bp (+32 bp frm 9:30 yesterday)
Dollar/Yen: 119.90 +0.52 yen
Dollar/Euro: $1.1276 +$0.0052
Gold: $1169.60 -$12.80
Crude Oil: $59.18 -$0.45
DJIA: 17,938.68 +98.16
NASDAQ: 4973.29 +31.86
S&P 500: 2095.91 +10.40