More strong selling this morning; the 10 at 2.24% +6 bps this morning early, MBS prices down 27 bps. US stock indexes also under a little pressure prior to the 9:30 open. Consumer prices in the EU were up this morning for the first time since Nov 2014. Europe’s CPI had been -0.6% in January increasing concern of deflation, since then prices have edged higher to finally show positive price gains. The flash CPI was expected at +0.2% but increased to +0.3%; core inflation accelerated to 0.9% the fastest pace in 9 months. The increase in inflation triggered the present selling in the bond market this morning. The ECB had been saying 2015 inflation at zero and +1.8% by the end of 2017; tomorrow the ECB will likely revise the outlook to a more rapid increase. Greece will make the €300 million payment due the IMF on Friday. Our opinion. The amount though is the smallest of four payments due in June totaling €1.6 billion. The timing coincides with the expiration of a euro-region bailout by the end of June. There was a meeting yesterday among the EU’s main leaders and the IMF. Merkel’s office said in a statement only that the five leaders “agreed that work must now be continued with greater intensity” and that “they have been in closest contact in recent days and want to remain so in the coming days, both among themselves and naturally also with the Greek government.” I am hesitant to say it, but this month looms as critical for the Greece debt issues. This month is important and leaders are rattling their swords but that isn’t new, more kicking the can is the most likely outcome this month. Yesterday Vice Chair of the Fed Stanley Fischer commented on the Fed’s planned increase of the FF rate. The term lift-off “is the most misleading word you can imagine,” he said. “Liftoff says we’re going straight up with the interest rate, well, we’re going up with the interest rate, then along, and then another little jump. That’s not liftoff, that’s crawling.”
Two key reports yesterday; the May ISM manufacturing index and April consumer spending. Markets tossed the spending in the trash even though consumers that account for 70% of economic growth was flat---no increase. The ISM manufacturing index was the best in the last three months but was anything but exciting, that report was what investors and traders focused on. The index increased to 52.8 frm 51.5, better than 51.8 expected but not the best this year, January the index was at 53.5. These days markets tend to give more attention to anything better no matter how minor, while ignoring what we see as more critical like personal spending that has faltered all year.
At 9:30 the DJIA opened -43, NASDAQ -19, S&P -6. The increase in interest rates driving investors to do some selling, within 10 minutes of the open the DJIA traded down 95 points. At 9:30 the 10 yr note at 2.24% +6 bps and 30 yr MBS price -27 bps frm yesterday’s close and 54 bps lower than at 9:30 yesterday.
April factory orders at 10:00; expectations were for orders to be flat frm March, as reported orders declined 0.4%, it was the eighth time in the last nine months factory orders have declined. March orders were up 2.2%; have to go back to last July for another month where orders increased.
May auto and truck sales coming stronger than forecasts.
Last Friday’s price action looked like maybe rates would improve somewhat; it was as we noted yesterday a false move, yesterday no follow-through. We didn’t bite Friday though and suggested keeping locked. The ISM May manufacturing index took whatever bullish bias away in a flash. This morning the 10 yr, driver for MBS prices, at 2.24% has moved the 10 back above its 200 day average again opening a re-test of the recent high rate at 2.33% back on May 12th. All of our work back to bearish in the near term. Inflation news frm Europe the trigger this morning. A lot more data yet to uncover through the rest of the week that should continue the increasing volatility.
BEST TO KEEP LOCKED TODAY. WE WILL LET YOU KNOW IF PRICES TURN AROUND BUT LIKELY WON’T BE ENOUGH TO CONSIDER RISKING FLOATING.
PRICES @ 10:00 AM
10 yr note: -17/32 (53 bp) 2.24% +6 bps
5 yr note: -7/32 (22 bp) 1.60% +5 bps
2 Yr note: -1/32 (3 bp) 0.66% +1 bp
30 yr bond: -33/32 (103 bp) 2.99% +6 bp
Libor Rates: 1 mo 0.183%; 3 mo 0.282%; 6 mo 0.423%; 1 yr 0.747%
30 yr FNMA 3.5 June: @9:30 103.86 -30 bp (-57 bp frm 9:30 yesterday)
15 yr FNMA 3.0 June: @9:30 104.09 -21 bp (-27 bp frm 9:30 yesterday)
30 yr GNMA 3.5 June: @9:30 104.23 -30 bp (-51 bp frm 9:30 yesterday)
Dollar/Yen: 123.97 -0.80 yen
Dollar/Euro: $1.1141 +$0.0214
Gold: $1192.30 +$3.60
Crude Oil: $60.74 +$0.54
DJIA: 17,984.95 -55.42
NASDAQ: 5063.14 -19.78
S&P 500: 2104.75 -6.98
Two key reports yesterday; the May ISM manufacturing index and April consumer spending. Markets tossed the spending in the trash even though consumers that account for 70% of economic growth was flat---no increase. The ISM manufacturing index was the best in the last three months but was anything but exciting, that report was what investors and traders focused on. The index increased to 52.8 frm 51.5, better than 51.8 expected but not the best this year, January the index was at 53.5. These days markets tend to give more attention to anything better no matter how minor, while ignoring what we see as more critical like personal spending that has faltered all year.
At 9:30 the DJIA opened -43, NASDAQ -19, S&P -6. The increase in interest rates driving investors to do some selling, within 10 minutes of the open the DJIA traded down 95 points. At 9:30 the 10 yr note at 2.24% +6 bps and 30 yr MBS price -27 bps frm yesterday’s close and 54 bps lower than at 9:30 yesterday.
April factory orders at 10:00; expectations were for orders to be flat frm March, as reported orders declined 0.4%, it was the eighth time in the last nine months factory orders have declined. March orders were up 2.2%; have to go back to last July for another month where orders increased.
May auto and truck sales coming stronger than forecasts.
Last Friday’s price action looked like maybe rates would improve somewhat; it was as we noted yesterday a false move, yesterday no follow-through. We didn’t bite Friday though and suggested keeping locked. The ISM May manufacturing index took whatever bullish bias away in a flash. This morning the 10 yr, driver for MBS prices, at 2.24% has moved the 10 back above its 200 day average again opening a re-test of the recent high rate at 2.33% back on May 12th. All of our work back to bearish in the near term. Inflation news frm Europe the trigger this morning. A lot more data yet to uncover through the rest of the week that should continue the increasing volatility.
BEST TO KEEP LOCKED TODAY. WE WILL LET YOU KNOW IF PRICES TURN AROUND BUT LIKELY WON’T BE ENOUGH TO CONSIDER RISKING FLOATING.
PRICES @ 10:00 AM
10 yr note: -17/32 (53 bp) 2.24% +6 bps
5 yr note: -7/32 (22 bp) 1.60% +5 bps
2 Yr note: -1/32 (3 bp) 0.66% +1 bp
30 yr bond: -33/32 (103 bp) 2.99% +6 bp
Libor Rates: 1 mo 0.183%; 3 mo 0.282%; 6 mo 0.423%; 1 yr 0.747%
30 yr FNMA 3.5 June: @9:30 103.86 -30 bp (-57 bp frm 9:30 yesterday)
15 yr FNMA 3.0 June: @9:30 104.09 -21 bp (-27 bp frm 9:30 yesterday)
30 yr GNMA 3.5 June: @9:30 104.23 -30 bp (-51 bp frm 9:30 yesterday)
Dollar/Yen: 123.97 -0.80 yen
Dollar/Euro: $1.1141 +$0.0214
Gold: $1192.30 +$3.60
Crude Oil: $60.74 +$0.54
DJIA: 17,984.95 -55.42
NASDAQ: 5063.14 -19.78
S&P 500: 2104.75 -6.98
