Treasuries and MBSs started a little soft this morning with early trading in stock index futures pointing to a better open at 9:30. Yesterday the bellwether 10 yr declined to 2.56%, its first key technical resistance but couldn’t break through at 9:00 this morning the 10 at 2.57% up 1 bp and 30 yr MBS prices -14 bps. Once again this morning there was no scheduled economic data, so far this week the data calendar has been empty; May consumer credit yesterday afternoon showed auto financing was strong but revolving credit slowed frm April. No direct reaction to the report however.
Today Treasury will auction $21B of 10 yr notes at 1:00, in the meantime we don’t expect the bond and MBS markets to do much. Not only the auction but at 2:00 the minutes frm the 7/18 FOMC minutes will be released; that too should keep the markets quiet this morning. The recent decline in the stock indexes has lent solid support to the bond market. This week, after the better June employment report the DJIA has declined 162 points increasing the view (at least at the moment) that the long awaited correction may be at hand. Investors increasing their balancing of portfolios with additions of safe treasuries, however still no serious stock selling. Yesterday was the start of earnings season, the belief is that companies had a good quarter in term of earnings. It helps earnings when businesses hold back on hiring, but it doesn’t help the economic foundation that remains weak with not many good paying jobs. The chart above is of the DJIA; note the trend line and the 20 day MA holding and the 14 day RSI also still above its 50 pivot level.
After two weeks of decline the weekly MBA mortgage applications were better last week. Mortgage applications increased 1.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 4, 2014. The Refinance Index increased 0.4 percent from the previous week. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The purchase index is down 10% frm a year ago. The refinance share of mortgage activity decreased to 52 percent of total applications from 53 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.32 percent from 4.28 percent, with points increasing to 0.16 from 0.14 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The 10 is at its resistance level; the DJIA is at a key support level. Rate markets and equity markets focusing on the FOMC minutes this afternoon, both at near term significant levels. Watching a little more closely now, the situations in the mid-east; Afghanistan, Iraq, Syria, Iran and now Israel all in some form of upheaval. So far there is noticeable moves to US treasuries into safety but the pot is boiling and everyone is watching with interest. Markets likely to be quiet until this afternoon with the 10 yr auction at 1:00 and the FOMC minutes at 2:00.