The stock market opened weaker this morning helping the bond and mortgage markets. The 10 yr note holding nicely close to its rock-solid resistance at 2.58%/2.60% level. The only economic data today, the March US trade deficit, expected at -$40.5B was right on at -$40.4B. Exports were the strongest in nine months and point to an increase in global economic demand. In Q1 economic growth slowed by bad weather and a decline in business investment. The Feb deficit was $42.3B originally but revised to -$41.9B. Not a first tier data point but the decline is seen as evidence Q2 is picking up momentum. Exports increased to $193.9B from $190B in February paced by record demand from Canada, South Korea and countries in Central America and the Dominican Republic. Shipments to Germany were the strongest since October 2008. Excluding petroleum, exports were at an all-time high in March.
Russia/Ukraine; local pro-Russian residents attacking border guards or trying to intimidate them into changing allegiances. Ukrainian authorities said Tuesday that the situation along the country's border with Russia grew more unstable in the last week. Kiev is increasingly losing its grip in the eastern regions of Luhansk and Donetsk, which both border Russia. Ukraine and the West have blamed Russia for instigating the revolt in the east, a charge Moscow has denied, but Russia has tens of thousands of troops stationed along the border and has said it reserves the right to intervene in Ukraine if it feels ethnic Russians living there are under threat. There is no relaxation in the tensions and given the lack of progress and the increasing comments from Putin that he reserves the right to intervene adds to the concerns of a wider civil war probability. As long as the situation worsens the more safety buying of US treasuries is likely.
The DJIA opened -45, NASDAQ -12, S&P -6; 10 yr at 9:30 recovering from early selling, at 2.60% -1 bp and 30 yr MBS price +5 bps from yesterday’s close and -7 bps from 9:30 yesterday.
The only thing now on the schedule is at 1:00; Treasury will auction $29B of 3 yr notes, beginning three days of borrowing; tomorrow Treasury will sell $24B of 10 yr notes. Similar to yesterday, we don’t expect much movement in the bond and mortgage markets by the end of the day. Volatility intraday however, remains high. Note the MBS chart above and the candlestick wicks, easy to see the kind of trading that has occurred the last 4 days. Ukraine is a plus for the rate markets, if the stock market continues the early selling that too will keep the rate markets from declining prices.
Beside the geo-political situation, Janet Yellen is scheduled to testify the Joint Economic Committee tomorrow and at the Senate on Thursday. It will be tough for the 10 yr to break its resistance at 2.58%/2.60% levels; five times since early February the note has been here and in all instances the decline in rates abated and rates edged back up.
RateSnapshot courtesy of TBWSratealert.com