Rate snapshot: Jobless claims down, investors hedge against Ukraine developments

by MPA07 Aug 2014

Very early this morning the 10 year yield fell to 2.445% (again) and since then has held the resistance that has stopped any rate declines for a month now. Weekly jobless claims were out at 8:30. Expected to be up 3K but fell 14K to 289K. The four-week average, a less-volatile measure than the weekly figure, dropped to 293,500, the lowest since February 2006, from 297,500 the week before. Jobs are increasing each month based on BLS monthly employment data as employers are not firing much anymore as the economy improves, slowly, but it is improving. We won’t go there about the quality of the jobs being created, most of our readers know that the quality isn’t very good in terms of hours worked and income earned.
Ukraine/Russia still a serious issue and as it continues large investors and traders continue to hedge against further developments that could escalate and involve other East European countries. Doesn’t seem likely now but situations like this can change rapidly. Yesterday Russia moved another 20K troops to the Ukraine border driving Europe’s stock market down hard and initially dragged the US equity market lower before recovering to essentially unchanged by the end of the day yesterday. Russia banned U.S. and European food imports including cheese, fish, beef, pork, fruit, vegetables and dairy products today. Putin’s government also restricted such imports from Canada, Australia and Norway as it sought to retaliate against nations that have imposed or supported sanctions against Russia. Tit for tat, Russia’s sanctions won’t cause much of a problem but adding more troops does have a worrisome influence.
This morning the geo-political issues, while still there, are being pushed aside since nothing new developed today. Today, at least at the beginning, traders looking more at some better earnings reports and pushing stock indexes higher at the 9:30 open. The ECB meeting didn’t have any new initiatives to stop the decline in Europe’s economies and left its base interest rate unchanged. Yesterday Italy reported its quarterly GDP declined for the second quarter, that qualifies as a recession in the country; Portugal, Spain and all EU economies are suffering from the sanctions levied on Russia. Mario Draghi saying he doesn’t know what to do (my interpretation). He said the obvious; heightened geopolitical risks could hurt growth. Stock markets in Europe are declining; even Germany’s stock market is down 10%, the best in the region.
The DJIA opened +36, NASDAQ +18, S&P +7; 10 year note unchanged at 2.47% after 2.44% earlier today; 30 year MBS prices unchanged from yesterday.
Interest rate markets, primarily treasuries, will likely continue to be well supported with global stock markets weak; the US stock market after the recent declines is technically bearish. The DJIA is trading under its 100 day average; S&P futures are slightly better, holding just above its 100 day average. The momentum oscillators on the DJIA and S&P are approaching near term oversold levels; a potential for some improvement on a near term basis. US is better than global economies but can’t be expected to gain much on just US growth; like Hillary once said, “it takes a village”.
We don’t expect interest rates or prices will change much today; or in the immediate future. Russia isn’t about to launch an invasion of Ukraine anytime soon; and likely not at all; but that won’t lessen the concerns and the move to safe haven in US treasuries. MBSs won’t change much today. The bullish technical bias remains and is important, never overlook the actual trading, the best way to judge reaction to any news. The 10 still has a positive bias; as long as stocks are not improving and Ukraine is in the news there is little likelihood rates will increase; equally there isn’t any momentum to push rates lower unless geo-political events worsen. We are not ignoring the increased tensions in the mid-east; not much news but there are growing tensions in Iraq, Syria, Jordan, Turkey and Iran that are being monitored closely.
PRICES @ 10:00 AM
10 year note: +3/32 (9 bp) 2.46% -1 bp
5 year note: +1/32 (3 bp) 1.64% -1 bp
2 year note: -1/32 (3 bp) 046% -1 bp
30 year bond: +5/32 (15 bp) 3.26% -1 bp
Libor Rates: 1 mo 0.158%; 3 mo 0.234%; 6 mo 0.328%; 1 year 0.555%
30 year FNMA 4.0 Aug: @9:30 105.52 unch (-4 bp from 9:30 yesterday) 3.5 coupon 102.34 unch (-15 bp from 9:30 yesterday)
15 year FNMA 3.0 Aug: @9:30 103.37 -7 bp (-7 bp from 9:30 yesterday)
30 year GNMA 4.0 Aug: @9:30 106.20 -2 bp (-7 bp from 9:30 yesterday) 3.5 coupon 103.44 +3 bp (unch from 9:30 yesterday)
Dollar/Yen: 102.34 +0.24 yen
Dollar/Euro: $1.3350 -$0.0033
Gold: $1305.60 -$2.60
Crude Oil: $97.08 +$0.16
DJIA: 16,501.88 +58.54
NASDAQ: 4375.93 +20.88
S&P 500: 1925.83 +5.59


Should CFPB have more supervision over credit agencies?