A fair amount of intraday market volatility yesterday, but at the end of the day mortgage markets were unchanged frm Wednesday. The 10 yr note yield increased to 2.63% up 3 bps with inflation concerns taking on a new life since Tuesday’s CPI and yesterday’s Philly Fed business index for June showed prices pd increased 12 points on the index, a serious increase on a month to month basis. The hallmark for this week is be the rapid increase on inflation fears. Countering the CPI and Philly Fed data; Janet Yellen, at her press conference after the FOMC meeting on Wednesday, when asked about the jump in CPI, said she believed it to be ‘noise’. In other words the Fed doesn’t see a concern that inflation is increasing.
Not news, everyone knows by now the Fed isn’t happy that the level of inflation hasn’t moved to its preferred level of 2.0%. The May CPI yr/yr inflation did increase to 2.1%, however apparently the Fed thinks it is a brief and unsustainable increase. Financial markets will be focused on inflation as a potential near term threat for long term interest rates until next Wednesday (if not longer) when the final Q1 GDP data is reported. Along with the negative growth that will be reported for the quarter the PCE (personal consumption expenditures) data will be reported, it is the Fed’s favorite read on inflation. Although it is Q1 and we are almost finished with Q2, it will carry a little more interest. In last month’s preliminary Q1 data the price index was +1.3%.
There is no economic data on the schedule today. Next week though there is a lot of housing data along with other key measurements. Q1 final GDP next Wednesday, the preliminary report showed the quarter contracted 1.0%, Yellen has blamed the contraction on the bad winter weather, as have most economists. The final report is not likely to change much frm the preliminary report last month. May existing and new home sales, the FHFA housing price index, and Case/Shiller 20 city price index. Two measurements of consumer attitudes, U.of Michigan and consumer confidence, May personal income and spending and May durable goods; all next week. Add in Treasury will auction $94B of 2s, 5s, and 7yr notes and next week promises to continue the volatility that has increased this week in bond and MBs intraday trading.
At 9:30 the DJIA opened +20, NASDAQ +4, S&P +2; 10 yr note 2.65% +2 bp and 30 yr MBS price -2 bps frm yesterday’s close and -14 bps frm 9:30 yesterday.
Iraq: nothing new on the situation overnight.
Testing key support, the 10 yr note yield has been in a tight range since early this month, 8 basis points in rate, between 2.58% and 2.66%. Early this morning the yield hit 2.66%, now 2.65% and trading at its 100 day average. The note is above its 20 and 40 day averages and most all of the momentum oscillators are in slight bearish territory. With nothing new in Iraq today and no data to swing markets, today should trade quietly. The FOMC, the Fed’s quarterly estimates for growth and inflation and the new inflation concerns generated increased daily trading with wide swings in MBS prices, treasury prices and key stock indexes this week. I don’t expect interest rates will increase today, the weekend is not a time to be selling treasuries with Iraq on the radar and all of the news coming next week.