Rate snapshot: Futures weak, but mortgage an bond markets rally

by MPA19 May 2014

Friday a little price decline, this morning started better recovering the declines on Friday.
The US stock market futures traded weaker early, supporting the bond and mortgage markets. After the strong three day decline in rates last week the bond and mortgage markets now consolidating the strong rally; the good news so far is that there hasn’t been any selling, just no buying. At 9:00 this morning the 10 yr note +6/32 (18 bp) at 2.50% -2 bps; 30 yr MBS price +14 bp.
Not much on the economic calendar this week but what there is will draw a lot of attention. Both existing and new home sales for April, and the minutes from the last FOMC meeting (4/30) are the keys this week. The bond and mortgage markets continue to take their lead by how the stock market trades; don’t be misled, traders are moving back and forth between stocks and bonds in the last month. There is an increasing concern now that the economy isn’t robust and the outlook for increased growth has been lowered in the minds of many investors. This year is not going to grow at the 3.0% rate that was the consensus a month ago. Q1 GDP will end negative and Q2 outlook is being reduced.
At 9:30 the DJIA opened -46, NASDAQ -14, S&P -4; 10 yr 2.50% -2 bp and 30 yr MBS price +14 bp.
Tensions in Ukraine are lessening (maybe); according to the news reports Putin has ordered Russian troops near the Ukrainian border back to base, the Kremlin said, signaling a possible easing of tensions six days before Ukraine’s presidential election. Ukraine will hold a presidential election next Sunday. Putin said contacts between the Kiev government and supporters of a decentralization of powers to the country’s regions was a welcome event. The take away for the US interest rate markets is that the Russian/Ukraine situation is becoming less a factor on safety into treasuries. The US rate markets now are focused on the increasing weakness in the stock market and, the what is now an inevitable move from the ECB, to add additional stimulus. 90% of economists in the Bloomberg Monthly Survey predict the European Central Bank president will ease monetary policy in June after saying on May 8 that officials are “comfortable” with acting then. The rate markets in Europe continue to decline on the strong belief another round of QE is on the way. The fall n rates in Germany, France and other European countries has made US treasuries cheap with our 10 yr note at 2.50% while the German 10 yr bund is trading at 1.34%.
No direct economic news this week until Wednesday, in the meantime there are a number of Fed officials speaking. At 12:10 today Dallas Fed pres. Fisher; Tuesday at 12:30 Philly Fed res. Plosser; Wednesday 11:30 Janet Yellen at NYU commencement, 12:50 pm Kansas Fed pres., George, at 1:30 Minneapolis Fed pres. Kocherlakota.
This Week’s Economic Calendar:
             7:00 am weekly MBA mortgage applications
             2:00 pm FOMC minutes from 4/30 meeting
             8:30 am weekly jobless claims (+13K to 310K)
             10:00 am April existing home sales (+2.1% to 469K units)
                            April leading economic indicators (+0.4%)
             10:00 am April new home sales (+8.6% to 420K units)
              2:00 pm EARLY BOND MARKET CLOSE
Interest rate markets presently working on key resistance at 2.48%, the lowest close since last November. Technicals still looking gdod but the 10 yr note, based on its relative strength index is at overbought levels that will likely keep rates from declining much and may push rates a little higher as the recent rally needs to be consolidated to test any upside trading. We expect interest rates will continue to fall as long as the equity market remains weak. On Thursday and Friday April home sales will be key; the housing sector has been the major drag for the economy. Both existing and new home sales are expected to have improved in April, if so that could roil the rate markets, As for Ukraine, nothing is expected this week with the election scheduled for next Sunday.
PRICES @ 10:00 AM
10 yr note:                    +5/32 (15 bp) 2.51% -1 bp
5 yr note:                      +4/32 (12 bp) 1.53% -2 bp
2 Yr note:                      +1/32 (3 bp) 0.35% -2 bp
30 yr bond:                   +1/32 (3 bp) 3.3.34% -0.5 bp
Libor Rates:                 1 mo 0.149%; 3 mo 0.228%; 6 mo 0.325%; 1 yr 0.534%
30 yr FNMA 4.0 June:  @9:30 105.42 +14 bp (+10 bp from 9:30 Friday)
15 yr FNMA 3.0 June:  @9:30 103.69 +10 bp (-1 bp from 9:30 Friday)
30 yr GNMA 4.0 June:  @9:30 106.20 +9 bp (-20 bp from 9:30 Friday)
Dollar/Yen:                  101.16 -0.34 yen
Dollar/Euro:                $1.3723 +$0.0029
Gold:                           $1301.10 +$7.70
Crude Oil:                   $102.73 +$0.71
DJIA:                           16,471.57 -19.74
NASDAQ:                    4101.66 +11.07
S&P 500:                     1879.55 +1.69


Should CFPB have more supervision over credit agencies?