Yesterday the bond and mortgage markets were unchanged in very narrow ranges all day. Today the markets are stariing the same way with little change from yesterday’s closes. At 830am November Consumer Price Index (CPI), the only data taday, the overall and the core were expected up +0.1%; as reported the overal was unchanged and the core (excluding food and energy) were up +0.2%. There was no reaction to the higher core in the bond market.
The stock indexes in pre-opening trade were better. At 900am the DJIA was up 63 points. At 930am the DJIA opened +55 points, the 10-Year Note was up 7/32 at 1.89%, mortgage prices were up +1/32.
In Europe the various stock exchanges are mixed with the FTSE up in the U.K. Germany and French markets were unchanged. U.S. equities are optimistic the European Union (E.U.) will meet a December 19 deadline for funding a crisis-fighting package. U.S. stocks snapped a three-day decline yesterday after reports on jobless claims and manufacturing boosted confidence in the U.S. economic improvement. According to leaders in Europe, the E.U. should meet an informal December 19 deadline for arranging loans to the International Monetary Fund (IMF) as part of a crisis-fighting package. E.U. leaders decided at a December 9 summit to channel an additional 200 billion euros ($261 billion) in loans to the IMF to help fight the euro region’s debt crisis.
Europe remains key to keeping U.S. interest rates low. If Europe wasn’t facing this crisis, U.S. interest ratesgiven the recent improvements in most economic readings, the 10-Year Note and mortgages would likely be 25 to 30 basis points (bps) higher in rates. ECB President Mario Draghi announced a plan to offer lenders unlimited funds for three years after the central bank’s policy meeting on December 8th. The result has Spanish and Italian notes better today, leading gains in euro-area debt, on speculation that banks bought the securities to use as collateral when the European Central Bank staarts offering three-year loans next week.
The bellwether 10-Year Note yield at 1.88% is 2 basis points from its recent low yield this morning. mortgages are just sitting with no change yesterday and so far this morning. In past moves when the 10-Year Note traded below 2.00%, it lasted just three days before it moved back over 2.00%. This time the downward trend may last longer as investors begin to wind down for the year. With Europe still a constant ticking bomb, investors and traders are not likely to back off treasuries much. Technically the bond market is still holding a bullish bias, morgage markets slightly so but still in decent shape. With the weekend here toady, it’s likely to be quiet with narrow ranges.
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