Rate snapshot: MBS prices up, weekly jobless claims expected to increase

by MPA17 Jul 2014

Treasuries and MBSs opening strong this morning after price declines had driven the bellwether 10 yr to its key support at 2.57%
; at 9:00 this morning the 10 at 2.50% and MBS prices +11 bps frm yesterday’s close. The support this morning; increasing tensions between the US and Russia as additional economic sanctions were announced by the administration and in Europe. Russia continues to deny it is supporting the separatists in Ukraine; the fighting has increased in the last few weeks leading to the new sanctions. Putin saying the new sanctions will lead US and Russian relations to a dead end. Ukraine accused Russia's armed forces of shooting down one of its fighter jets over Ukrainian territory, marking Kiev's most direct accusation yet of Moscow's involvement in the separatist conflict in the country's east.
After three days of improvements in the stock market, this morning the indexes are lower. Microsoft announced it will cut 18K jobs this year and next. Not the only reason some weakness in stocks this morning. June housing starts and permits were worse than expected. Housing starts fell 9.3% to an 893,000 annualized rate from a 985,000 pace in May that was weaker than initially estimated; the consensus estimate for starts was an increase of 2.5% to 1026K, the report is the lowest start level in nine months. Construction of single-family houses declined 9% to a 575,000 rate, the weakest since November 2012, the report showed. Work on multifamily homes, such as apartment buildings, fell 9.9% to a 318,000 rate. The drop was influenced by a 20.1% plunge in the South, the biggest decrease since May 2010. This is the time of year starts should be increasing; the report goes to the reality that the housing industry is still struggling. Adding more concern about housing, building permits in June were expected to be up 4.5%, as reported permits dropped 4.0% to 963K.
Weekly jobless claims were expected to have increased last week to 310K frm 310K frm 305K (revised frm 304K), claims dropped 3K to 302K, still unable to break down below 300K. Not much change in claims over the past five weeks. Stabilized claims can lead to increases in jobs, but mainly suggests firings are waning.
The DJIA opened -38, NASDAQ -12, S&P -6; 10 yr at 9:30 2.50% -3 bp and 30 yr MBS prices +17 bps frm yesterday’s close.
Another key data point at 10:00; the July Philadelphia Fed business index was expected at 16.9 frm 17.8 in June. The index increased to 23.9 the best since March 2011. The current new orders and shipments indexes increased notably this month, increasing 17 points and 19 points, respectively. Both unfilled orders and delivery times indexes were positive for the second consecutive month, suggesting continued strengthening conditions. The employment index remained positive, and, although it increased less than 1 point, it has improved for four consecutive months. The percentage of firms reporting increases in employment (24 percent) exceeded the percentage reporting decreases (12 percent). The workweek index was positive for the fifth consecutive month and increased 5 points. The better report has taken a little away from the bond market improvement.
Current data on foreign bond purchases of US treasuries explains one reason UIS interest rates have stayed low as most economists have been forecasting higher long term rates by now.
The driver for mortgage rates, the 10 yr note, spend this week testing its technical support at 2.57%, it held. This morning the market is beginning by testing its resistance at 2.50%. As we have noted through the week, our technical indicators continued to hold bullish biases; that the range is so narrow in the broader sense there has been little change in rates over the last week and a half. As long as the equity markets continue to attract buying there is not much we can expect for declining rates. That said, there are still geo-political concerns that support treasury buying. The mid-east has been quiet this week (at least in the news), Ukraine/Russia continues to boil; both are closely monitored by large investors and central banks.
PRICES @ 10:15 AM
10 yr note:+4/32 (12 bp) 2.51% -2 bp
5 yr note:+1/32 (3 bp) 1.68% -1 bp
2 Yr note:unch 0.49% unch
30 yr bond:+11/32 (34 bp) 3.32% -2 bp
Libor Rates: 1 mo 0.155%; 3 mo 0.233%; 6 mo 0.326%; 1 yr 0.554%
30 yr FNMA 4.0 Aug: @9:30 105.50 +16 bp (+15 bp frm 9:30 yesterday) 3.5 coupon 102.28 +19 bp (+20 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.29 +7 bp (-11 bp frm 9:30 yesterday)
30 yr GNMA 4.0 Aug: @9:30 106.50 +14 bp (+11 bp frm 9:30 yesterday) 3.5 coupon 103.44 +15 bp (+20 bp frm 9:30 yesterday)
Dollar/Yen:101.52 -0.15 yen
Dollar/Euro:$1.3527 unch
Gold:$1304.90 +$5.10
Crude Oil:$102.84 +$1.64
DJIA:17,129.98 -8.22
NASDAQ:4415.54 -10.43
S&P 500:1978.83 -2.74


Should CFPB have more supervision over credit agencies?