Interest rates a little better early this morning; the 10 yr at 2.49% at 9:00, down 2 bps from yesterday. 30 yr MBS price +5 bps from yesterday’s close (see below for 10:00 levels). Late yesterday afternoon, just prior to 5:00 pm MBS prices in very thin trading bounced off the low prices we reported at 4:00. At 4:00 30 yr MBS price was off 33 bps, at the 5:00 closes down 25 bps. June durable goods orders at 8:30 were stronger than expected, +0.7% against 0.5% expected, ex transportation orders +0.8%. Durables in May were revised to -1.0% from -.9%.
Ukraine/Russia is still on the radar but traders and investors are not as fearful as they were last week and since the fighting began. Ukraine troops re-took a key separatist stronghold after days of fighting. News out this morning that artillery and rockets are being fired into Ukraine from Russia. The European Union will publish its latest blacklist of people, companies and organizations over the Ukraine crisis later today. The list covers 15 people, nine Crimean companies and nine separatist groups, according to draft obtained by Bloomberg News yesterday. Russia’s central bank increased borrowing costs for a third time this year as the intensifying conflict over Ukraine and the threat of wider sanctions squeeze the economy and weaken Russia currency. In one of the commentaries I read regularly, and interesting point was made by Michael Cembalest of J.P. Morgan Asset Management has a helpful thought: the only time since WWII that a violent conflict has had a medium-term negative effect on markets was in 1973, when the Israeli-Arab war led to a Saudi oil embargo against the US and a quadrupling of oil prices.
European stocks weaker today; the US stock market opened down 101 on the DJIA, NASDAQ -28, S&P -8. 10 yr note 2.48% -3 bps. 30 yr MBS prices +13 bps from yesterday’s close. Expect the stock market to recover some of the initial losses as the day progresses.
The weekend will likely keep markets focused on the heavy calendar next week, led by the FOMC meeting next Tuesday and Wednesday and the preliminary Q2 GDP report. Also next week Treasury will auction 2s, 5s and 7s; July ISM manufacturing, June personal income and spending, and another reading on consumer confidence. Although the markets are not quite as concerned now about Ukraine, it is still an event markets will continue to fret about if there is an expansion of the fighting. The world has become much less sensitive about it.
Technical review; the 10 is still bullish, its yield is lower than its 20 day average and other longer term averages. The 14 day relative strength index is under 50, still bullish, stochastics bullish. The resistance is solid at 2.44%, we do not believe it will be violated as safety moves that have kept interest rates low have lessened. Each day those moving averages are declining; yesterday we had 2.57% on the note as critical, today its 2.55% and the 20 day average is moving done 1 or 2 bps points each day. As noted, the FOMC meeting next week and the July employment report, the two events will likely set off the next move for the interest rate markets.