Here it is again; the 10 yr note rate traded at 2.44% this morning, the level that has stopped any rallies in the bond market since late last May. Global stock markets are weaker this morning on increased tensions in Ukraine and Italy's return to recession hit European stocks and sent the region's emerging-market currencies sliding. Putin is increasing measures to retaliate against the US and Europe; it appears his plan is to increase troops on the Ukraine border and possibly increasing natural gas prices to Europe. Ukraine separatists are losing the fight with Ukraine troops, Russia fearing separatists are in danger of being cut off so Russia wants a pause to “help” civilians fleeing the fighting. Western capitals have said they fear Russia could send troops in to support separatists under the guise of a mission to protect civilians. Moscow denies any such plan. The US and Europe have imposed sanctions on Russia causing economic weakness; Putin’s plan seems to be to increase tensions by adding as many as 20K new troops on the Ukraine/Russian border, taking the total to 50K. The result has driven US and European stock markets down, his idea of a sanction? Most all European bourses have declined about 10% at the least in the past month.
At 8:30 the June US trade deficit was expected at -$45.1B, as reported the deficit was less, -$41.5B. The decline in the deficit will help to improve the Q2 GDP when the preliminary report is released later this month.
Earlier this morning the weekly MBA mortgage applications data was a little better, but it was all re-finances. The Market Composite Index, a measure of mortgage loan application volume, increased 1.6% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 4% from the previous week. The seasonally adjusted Purchase Index decreased 1% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 14% lower than the same week one year ago. The refinance share of mortgage activity increased to 55% of total applications, the highest level since March 2014, from 53% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.35 percent from 4.33 percent, with points decreasing to 0.22 from 0.24 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.26 percent from 4.22 percent, with points increasing to 0.35 from 0.23 (including the origination fee) for 80% LTV loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.06 percent from 4.03 percent, with points increasing to 0.02 from 0.00 (including the origination fee) for 80% LTV loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.51 percent from 3.47 percent, with points increasing to 0.28 from 0.25 (including the origination fee) for 80% LTV loans.
At 9:30 the DJIA opened -44, NASDAQ -18, S&P -7; 10 yr 2.45% -3 bp, 30 yr MBS price +8 bps.
This week there isn’t much economic data; tomorrow weekly jobless claims. Friday Q2 productivity and unit labor costs are about it. Markets are focused on the geo-political events in Ukraine and Israel. Israel and Hamas have a cease fire that so far is holding for a second day. There are talks in Egypt on a long-term truce and a more comprehensive deal on the Gaza Strip. The truce is the longest pause in fighting that has so far killed 1,875 Palestinians and 67 Israelis, including three civilians, since the war started on July 8, according to Palestinian and Israeli officials. Officials are hopeful it can set the groundwork for talks on a lasting peace.
In yesterday’s 4:30 commentary we said: “We are going to change our slightly bullish outlook for the near term. For a few weeks we have tilted more to the bullish bias because the price action has held most of the momentum oscillators and moving averages in positive positions. We have recommended floating numerous times and have benefited little with the 10 trading at its very solid resistance. Now it is time to accept the fact that here is little reward in floating or being long the bond market. The risks of doing so is increasing. If the 10 crosses 2.44% in a decisive move we will jump back in; it is a day to day decision right now the risk/reward tilts too much on the risk side of the equation.”
This morning the 10 yr is once again testing the critical 2.44% level, earlier this morning 2.435%, at 10:00 2.45%. We will stick with what we said yesterday. Breaking 2.44% would be the lowest level this year, have to go back to last Oct to find this low rate. It is early, but as of 10:00 this morning the 10 has backed off its rock hard resistance at 2.44%, at 10:00 2.46% -2 bps on the day.
PRICES @ 10:10 AM
10 yr note: +8/32 (25 bp) 2.46% -2 bp
5 yr note: +3/32 (9 bp) 1.64% -2 bp
2 Yr note: +1/32 (3 bp) 0.46% -1 bp
30 yr bond:+17/32 (53 bp) 3.26% -2 bp
Libor Rates: 1 mo 0.158%; 3 mo 0.237%; 6 mo 0.329%; 1 yr 0.560%
30 yr FNMA 4.0 Aug: @9:30 105.56 +8 bp (+8 bp from 9:30 yesterday) 3.5 coupon 102.42 +14 bp (+14 bp from 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.44 +1 bp (-3 bp from 9:30 yesterday)
30 yr GNMA 4.0 Aug: @9:30 106.27 +6 bp (+6 bp from 9:30 yesterday) 3.5 coupon 103.51 +9 bp (+12 bp from 9:30 yesterday)
Dollar/Yen:102.35 -0.25 yen
Dollar/Euro: $1.3351 -$0.0025
Gold: $1306.50 +$21.20
Crude Oil:$97.69 +$0.31
DJIA: 16,432.63 +3.16
NASDAQ: 4354.56 +1.72
S&P 500: 1920.28 +0.07