Yesterday we said we would take all bets that this morning’s July employment data would be well off the consensus estimates. Fortunately no one took me up on it; the jobs were right on the estimates. Non-farm jobs +215K, private jobs +205K. The unemployment rate unchanged at 5.3%, average hourly earnings +0.2% to $24.99 and up 2.1% yr/yr, the labor participation rate 62.6% unchanged frm June, the lowest level since 1977 and U-6 unemployment at 10.4% (10.5% in June) the lowest level since June 2008. The previous two months were revised to add 14K more jobs than what had been reported. Most growth was in the service sectors but manufacturing added 15K jobs.
The employment report didn’t move the bond or mortgage markets on initial reactions. The 10 yr note yield did increase 2 bps but by 9:00 back to unchanged frm yesterday, MBS price dropped 14 bps on the knee jerk but at 9:00 also unchanged. US stock indexes saw some selling. The report this morning about cements it that the Fed will increase the FF rate at the Sept meeting; subject to change of course On every key data point. Good to get it over and end this month’s long on again off again debate within the markets.
No inflation on the horizon, in fact there is more concern of prices continuing to deflate than stabilize. Led by the decline in oil prices all commodities continue to lose value, driven lower by global slowdown frm Asia to Europe. The US equity market continues to look vulnerable to more selling. Combined, the two things are supporting lower long term rates as investors increasingly concerned that stock indexes will continue to decline in the near term.
At 9:30 the stock market opened weaker; the DJIA -52, NASDAQ -20, S&P -5. If the equity market closes lower today it will be the seventh day in succession that the key indexes have fallen. The soft equity markets driving money into safety in long dated treasuries and adding support in the mortgage markets. At 9:30 the 10 yr note yield down 1 bp point to 2.21% and MBS price on conventionals +11 bp frm yesterday’s close and up 20 bps frm 9:30 yesterday. FHA and VA prices at 9:30 were unchanged frm yesterday and +5 bp frm 9:30 yesterday.
The yield curve is flattening; rates at the short end moving up while at the long end holding and even declining. The flattening is pointing to an increase in the FF rate currently expected to occur in Sept. The equity market not sure what the impact of higher short term rates will have on the economy. So far this week the 10 yr note yield up 2 bps frm last Friday, 30 yr MBS price -12 bps. The 2 yr at 0.75% up 7 bps this week and the 5 yr note +9 bps.
Through this week our technicals remain positive for the long end of the curve (10s and MBSs). Although prices have been supported at key selling points the bullishness is can’t be taken too seriously. No matter what stance we take it is tenuous. Most of the rate market improvements this week has been in the 30 yr bond, parking money there provides the best yield. This week the 30 yr bond yield has dropped 5 bps. Overall this week rate markets haven’t moved much from last week’s closes.
PRICES @ 10:15 AM
10 yr note: +3/32 (9 bp) 2.21% -1 bp
5 yr note: -1/32 (3 bp) 1.62% +1 bp
2 Yr note: -2/32 (6 bp) 0.73% +2 bp
30 yr bond: +19/32 (59 bp) 2.87% -3 bp
Libor Rates: 1 mo 0.191%; 3 mo 0.311%; 6 mo 0.509%; 1 yr 0.835%
30 yr FNMA 3.5 Aug: @9:30 103.69 +11 bp (+20 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.61 unch (+11 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.17 -2 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen: 124.72 -0.02 yen
Dollar/Euro: $1.0882 -$0.0043
Gold: $1093.60 +$3.50
Crude Oil: $44.39 -$0.27
DJIA: 17,381.66 -38.09
NASDAQ: 5045.92 -10.52
S&P 500: 2079.11 -4.45
The employment report didn’t move the bond or mortgage markets on initial reactions. The 10 yr note yield did increase 2 bps but by 9:00 back to unchanged frm yesterday, MBS price dropped 14 bps on the knee jerk but at 9:00 also unchanged. US stock indexes saw some selling. The report this morning about cements it that the Fed will increase the FF rate at the Sept meeting; subject to change of course On every key data point. Good to get it over and end this month’s long on again off again debate within the markets.
No inflation on the horizon, in fact there is more concern of prices continuing to deflate than stabilize. Led by the decline in oil prices all commodities continue to lose value, driven lower by global slowdown frm Asia to Europe. The US equity market continues to look vulnerable to more selling. Combined, the two things are supporting lower long term rates as investors increasingly concerned that stock indexes will continue to decline in the near term.
At 9:30 the stock market opened weaker; the DJIA -52, NASDAQ -20, S&P -5. If the equity market closes lower today it will be the seventh day in succession that the key indexes have fallen. The soft equity markets driving money into safety in long dated treasuries and adding support in the mortgage markets. At 9:30 the 10 yr note yield down 1 bp point to 2.21% and MBS price on conventionals +11 bp frm yesterday’s close and up 20 bps frm 9:30 yesterday. FHA and VA prices at 9:30 were unchanged frm yesterday and +5 bp frm 9:30 yesterday.
The yield curve is flattening; rates at the short end moving up while at the long end holding and even declining. The flattening is pointing to an increase in the FF rate currently expected to occur in Sept. The equity market not sure what the impact of higher short term rates will have on the economy. So far this week the 10 yr note yield up 2 bps frm last Friday, 30 yr MBS price -12 bps. The 2 yr at 0.75% up 7 bps this week and the 5 yr note +9 bps.
Through this week our technicals remain positive for the long end of the curve (10s and MBSs). Although prices have been supported at key selling points the bullishness is can’t be taken too seriously. No matter what stance we take it is tenuous. Most of the rate market improvements this week has been in the 30 yr bond, parking money there provides the best yield. This week the 30 yr bond yield has dropped 5 bps. Overall this week rate markets haven’t moved much from last week’s closes.
PRICES @ 10:15 AM
10 yr note: +3/32 (9 bp) 2.21% -1 bp
5 yr note: -1/32 (3 bp) 1.62% +1 bp
2 Yr note: -2/32 (6 bp) 0.73% +2 bp
30 yr bond: +19/32 (59 bp) 2.87% -3 bp
Libor Rates: 1 mo 0.191%; 3 mo 0.311%; 6 mo 0.509%; 1 yr 0.835%
30 yr FNMA 3.5 Aug: @9:30 103.69 +11 bp (+20 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.61 unch (+11 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.17 -2 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen: 124.72 -0.02 yen
Dollar/Euro: $1.0882 -$0.0043
Gold: $1093.60 +$3.50
Crude Oil: $44.39 -$0.27
DJIA: 17,381.66 -38.09
NASDAQ: 5045.92 -10.52
S&P 500: 2079.11 -4.45
