Rate snapshot: MBS prices weaken, consumer optimism up

by MPA10 Jun 2014

Slightly weaker open this morning in the Treasury and MBS markets but not much;
early trade in US stock index futures indicated a weaker open in equity trading. Not a lot of new news today; markets still scratching its collective head over the strong demand for Europe’s bonds, Spain’s 10 yr note yield this morning at 2.54%, the US 10 yr 2.63% early on this morning. Italy and other major EU countries are experiencing strong buying as investors rush to yield. Germany still has the lowest rate at 1.40%. Headlines on the difference between Spain, a country that almost went bankrupt and Italy don’t take into account the currency spread between the euro and the dollar however, one analyst calculated that in dollar terms the Spanish note yields 4.0%. Turning onto EU notes and bonds is partly because the ECB is believed to keep on supporting debts of troubled countries while here there is concern the economy will continue to grow and inflation will begin to tick higher, making US debt held by US investors less attractive.
There really isn’t any new or direct market-moving news today. Treasury will begin its auctions today at 1:00 with $28 of 3 yr notes, it isn’t a term that has any impact on longer term debt that has influence over MBS prices. Tomorrow $21B of 10 yr notes will be auctioned, obviously a more interesting auction for traders and investors; Thursday $13B of 30 yr bonds go on sale. Important economic news this week isn’t on tap until Thursday with May retail sales, weekly claims and May import and export price changes. Friday May PPI and the mid-month U. of Michigan consumer sentiment index.
The DJIA opened -8, NASDAQ -6, S&P -3; at 9:30 the 10 yr note at 2.64% +3 bps from yesterday’s close, 30 yr MBS prices -13 bps from the close yesterday.
Early this morning the NFIB (National Federation of Independent Business) reported its optimism index at 96.6 from 95.2 last month; the highest reading since September, 2007.   The gain was modest, but at least positive, better than the performance of the economy.  Over the 12 month period prior to September, 2007, the Index had decline from 101 to 97, signaling the start of the recession at the end of 2007.  Eventually the Index fell to 80. 
April wholesale inventories expected up 0.5% after increasing 1.1% in March, as reported it was another solid number, up 1.1%. Also out at 10:00, not a market mover but interesting nevertheless; the April JOLTS report of job openings, expectation were an increase to 4.025 mil from 4.014 mil in March; as reported job openings increased to 4.455 mil.
Everything has come up negative for the 10 yr and MBS markets; all our technical indicators are now bearish, we cannot float now. The 10 is being avoided as traders and especially investors are turning to foreign sovereign debt like Spain and Italy where the rates are lower but with the currency exchange rates from dollars to euros the end yield on a Spanish 10 yr is close to 4.00% and will improve as the euro currency continues to decline against the dollar.


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