Another better start this morning with early trading in the stock market looking weak.
Yesterday the key indexes got hit hard and early today the outlook for the day looked nasty but by 10:00 the key indexes were abut unchanged. The weakness in equity prices is bolstering the treasury market and in turn pushing MBS prices higher.
The US now bombing in Syria; no direct market reaction to it though. The U.S. and its Arab allies launched a series of airstrikes against Islamic State positions in Syria, a major expansion of President Barack Obama’s effort to destroy the Sunni extremist group. Obama said in a Sept. 10 televised speech he would “not hesitate to take action” against Islamic State “in Syria as well as Iraq.” Airstrikes by the U.S. and a group of Arab allies against Islamic State targets in Syria are illegal and constitute an attack on the country, Hassan Rouhani, the president of Iran, said.
Yesterday there was some concern that China’s purchasing mgrs. index would decline when reported. The index from HSBC Holdings Plc and Markit Economics climbed to 50.5 this month, compared with the median estimate of 50 in a Bloomberg News survey of economists and August’s final reading of 50.2. Readings above 50 indicate expansion. Measures of new orders and new export orders increased at a faster rate, the report showed. Yesterday the Chinese finance minister commented that there would not be any additional stimulus plans at the moment. The comment sent US stocks down and added a little support in the bond and mortgage markets. This morning the stock markets generally quiet.
The July FHFA housing market index, expected +0.4%, as reported up just 0.1%; yr/yr +4.4% compared to 5.1% in June. Another soft housing market report but no reaction and very little interest in the report.
This afternoon Treasury will begin this week’s auctions with $29B of 2 yr notes. Normally we don’t pay much attention to the 2 yr but with the Fed poised to increase rates next year, the 2 demand may be interesting.
We have been noting recently that the bond and MBS markets are oversold based on our momentum oscillators; after the last few sessions though the oscillators are no longer at oversold levels. The wider technical picture remains slightly bearish; to change that the 10 will have to close below 2.52% where the 20, 40 and 100 day averages currently reside. We still don’t believe interest rates will increase much above 2.66%, and unlikely to break below 2.45% for the remainder of the year. The caveat would be geo-political conditions that drive fear into investors and into treasuries. Fundamentally; no inflation to worry about although the talk about it will continue as it has droned on since 2008. Europe and China in slow to no growth economies; the US can’t continue to grow as long as most of the world struggles. Last week the FOMC didn’t alter the key phrase that rates would remain low for a considerable period of time as almost every analyst and pundit expected. Noting we see now that would feed into much higher interest rates.
PRICES @ 10:30 AM
10 yr note: +3/32 (9 bp) 2.56% unch (today’s low 2.54%)
5 yr note: unch 1.78 unch
2 Yr note: unch 0.56% unch
30 yr bond: +10/32 (31 bp) 3.27% -1 bp
Libor Rates: 1 mo 0.154%; 3 mo 0.235%; 6 mo 0.330%; 1 yr 0.581%
30 yr FNMA 3.5 Oct: @9:30 102.03 +8 bp (+5 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 102.99 +3 bp (+11 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 103.22 +14 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen: 108.78 -0.06 yen
Dollar/Euro: $1.2874 +$0.0025
Gold: $1225.60 +$7.70
Crude Oil: $91.23 +$0.36
DJIA: 17,161.93 -10.75
NASDAQ: 4532.16 +4.47
S&P 500: 1994.16 -0.13