By David Shirmeyer, CEO at Sigma Research
A quiet open in the bond and mortgage markets this morning;
stock indexes at 9 a.m. were a little weaker. This week the FOMC meetings and markets are unsure what the Fed will do about ending QE. However, we expect the Fed will end it. The 10-year was at 2.28% very early this morning, up 1 basis point (bp) from Friday, but by 9 a.m. back to unchanged with MBS prices +8 bps from Friday’s -2 bp close.
U.S. stock indexes were essentially unchanged early this morning but at 9:30 a.m. the Dow Jones Industrial Average (DJIA) opened -44, NASDAQ -16, S&P -6. 10 year at 9:30 2.26% -1 bp and 30-year MBS price +9 bp from Friday’s close and +2 bps from 9:30 a.m. Friday morning.
Not much on the news wires this morning in the global world that markets are concerned with.
At 10 a.m. though the National Association of Realtors (NAR) reported pending home sales for September, the expectations were for an increase of 0.8%, as reported +0.3%; year-over-year sales were up 1%, the first year-over-year increase in 11 months. According to NAR, 15% of potential buyers are not able to get financing. Last week FHFA announced efforts to lessen some of the issues that are keeping many would-be buyers from being able to buy.
An article in the WSJ today addressing how investors and traders have been burned with their bets that interest rates would increase this year.
On Wed. 10/15 when the bellwether 10-year dropped to 1.85% bearish views on higher rates went out the window. As we noted then it was a complete capitulation by rate market bears. Since then rates have increased a little but there are no heavy bearish positions being placed now that rates are going to run up. Weak global economies, mostly middling economic reports in the US and continuing escalation of global geo-political issues have moved investors into treasuries. The U.S. 10-year yield still is the highest of all G-7 countries, making it an attractive trade in global markets.
Last week and so far today the 10 year note held its first technical support when the rate increased to 2.3%.
Although support has held there hasn’t been any real improvement, the 10 at 2.26% in early trading. Most of the market momentum oscillators continue to hold positive biases although not as bullish as two weeks ago.
This week the FOMC policy statement is the main event but there are few reports that will get a lot of attention. Durable goods orders, the advance look at Q3 GDP, two indexes on consumer feelings with consumer confidence and the University of Michigan consumer sentiment, the October Chicago Purchasing Mgrs. index, and this morning’s September pending home sales that were weaker than thought. Global economic weakness and the ECB’s effort to increase the tumbling economies and China’s problems with growth and the crashing home markets are supporting the bond markets now.
This Week’s Economic Calendar:
10:00 September pending home sales (+0.8%)
8:30 am September durable goods orders (+0.9%; ex transportation orders +0.5%)
9:00 am August Case/Shiller (+5.8%)
10:00 am Oct Consumer Confidence Index (86.8 from 86.0 in 86.0 in September)
1:00 pm $29B 2 year note auction
7:00 am weekly MBA mortgage applications
1:00 pm $35B 5 year note auction
2:00 pm FOMC policy statement
8:30 am weekly jobless claims (280K -3K)
Q3 advance GDP (3.0%, Q2 +4.6%; deflator +1.4%, Q2 +2.1%)
1:00 pm $29B 7 year note auction
8:30 am September personal income and spending (income +0.3%, spending +0.1%; PCE core +0.1%)
Q3 employment cost index (+0.5%, Q2 ++0.7%)
9:45 am Oct Chicago purchasing mgrs. index (60.5 unch from September)
9:55 am Oct U. of Michigan consumer sentiment index (86.4, unch from mid-month)
PRICES @ 10:20 AM
10 year note: +6/32 (18 bp) 2.25% -2 bp
5 year note: +2/32 (6 bp) 1.48% -1 bp
2 Year note: unch 0.39% unch
30 year bond: +13/32 (41 bp) 3.02% -3 bp
Libor Rates: 1 mo 0.152%; 3 mo 0.233%; 6 mo 0.323%; 1 year 0.543%
30 year FNMA 3.5 Nov: @9:30 103.58 +9 bp (+2 bp from 9:30 Friday)
15 year FNMA 3.0 Nov: @9:30 103.84 -2 bp (-7 bp from 9:30 Friday)
30 year GNMA 3.5 Nov: @9:30 104.58 -1 bp (+1 bp from 9:30 Friday)
Dollar/Yen: 107.66 -0.50 yen
Dollar/Euro: $1.2701 +$0.0030
Gold: $1228.40 -$3.40
Crude Oil: $79.59 -$1.42
DJIA: 15,769.06 -36.35
NASDAQ: 4465.33 -18.39
S&P 500: 1956.82 -7.76