Early this morning the US stock indexes were better,
that of course pulled MBS and treasury prices down. On the 9:30 open of the stock market the DJIA +16, a little lower than where it traded in the futures markets prior to the open; NASDAQ +10, S&P +1. 10 yr at 9:30 2.54% unch and 30 yr MBS price +2 bps frm yesterday’s close and +12 bps frm 9:30 yesterday.
German business confidence declined more than expected, leading more to believe the ECB will have to increase stimulus to EU countries. The European Central Bank said earlier this week it’ll be more active in its efforts to bolster the economies of the EU. The Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 104.7 from 106.3 in August in the EU. Economists predicted a decline to 105.8, according to the median of 36 estimates in a Bloomberg survey. The index is now at its lowest since April 2013.
The weekly MBS mortgage applications dropped 4.1%; the refinance apps were down 7.0% while the purchase apps were down 0.3%. The refinance share of mortgage activity decreased to 56% of total applications from 57% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 8.0% of total applications. 30 conforming rate increased to 4.39% frm 4.36% with points increasing to 0.35 from 0.20 (including the origination fee) for 80% loans. The purchase index yr/yr -16%.
August new home sales were just reported; the forecast was an increase of 4.2% to 430K annualized units, as reported sales----wait for it----increased 18.0% to 504K annualized units and last month’s sales were revised from 412K annualized to 427K. The huge increase is mostly in high end new home sales, still not much with first time buyers. Sales are contracts signed but not closed and new home sales data does not include multi-family construction. Based on present sales pace there is a 4.8 month supply. Mortgage apps decline while new home sales explode; more cash sales.
This afternoon Treasury will auction $35B of 5 yr notes; the 5 yr in the middle of the curve is gaining attention as its rate is increasing quicker than the 10 yr narrowing the spread. That trade is driven by the consensus view that the Fed will start increasing rates early next year. Yesterday the 2 yr note saw very strong bidding frm indirect bidders (foreign investors and central banks), we expect that will continue in today’s 5 yr.
The US is cobbling together an Arab coalition in the region to stop the growth of the Islamic State,best referred to as ISIS because the word State seems to imply some kind of finality or status as an independent political entity. Turkey is joining in after a muted response over the weekend. There is no imp[act to what the Obama Administration is now predicting the bombing will go on for maybe years. As long as it is bombs and oil is not effected there is nothing investors are concerned with now. The bombing of Islamic State militants in Syria is being carried out by the broadest Arab-U.S. military coalition since the 1991 Gulf War. Saudi Arabia, the United Arab Emirates, Jordan, Bahrain and Qatar all joined the first wave of U.S.-led airstrikes against the group yesterday. The Administration is building the coalition better than what it looked like over last weekend. Obama is going to address the UN sometime later this morning.
Still technically bearish; we need a close below 2.52% on the 10 to change that. US and Europe’s stock markets look vulnerable and with no inflation to worry about the potential for some lower rates looks promising; but we have to be somewhat skeptical until the technicals confirm that thought.
PRICES @ 10:10 AM
10 yr note: -3/32 (9 bp) 2.54% +1 bp
5 yr note: -2/32 (6 bp) 1.77% -1 bp
2 Yr note: -3/32 (9 bp) 0.58% +1 bp frm the auction yesterday
30 yr bond: -1/32 (3 bp) 3.25% unch
Libor Rates: 1 mo 0.154%; 3 mo 0.234%; 6 mo 0.329%; 1 yr 0.581%
30 yr FNMA 3.5 Oct: @9:30 102.09 -3 bp (+7 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 103.00 -7 bp (+1 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 103.21 +2 bp (-1 bp frm 9:30 yesterday)
Dollar/Yen: 108.78 -0.11 yen
Dollar/Euro: $1.2791 -$0.0056
Gold: $1218.80 -$3.20
Crude Oil: $91.64 +$0.08
DJIA: 17,045.21 -10.66
NASDAQ: 4506.14 -2.55
S&P 500: 1979.90 -2.29