Treasuries and mortgages were unchanged in early activity this morning with U.S. stock indexes weaker. At 930am the 10-Year Note traded +4/32 at 1.95% and mortgage prices were +3./32 (.09 bps). The debt crisis in Europe is not getting better. It’s actually worsening after the E.U. summit fumbled again with nothing but way out plans. Moody’s said on Monday that last week’s euro crisis summit didn’t provide new measures which would lead to a resolution of Europs’s debt problems and it would review European Union sovereign ratings in the first quarter of 2012. S&P said before the meeting that it may cut the credit rankings of euro members. Italy sold 5-Year Notes at the highest rate in 14 years. More eidence that the debt mess is nowhere close to any resolution. In the U.K. additional evidence Europe is moving back into recesion; the unemployment rate increased to 8.3% from 7.9% in the latest quarter. Unemployment among 16-24 year olds climbed 54,000 to 1.03 million, or 22%, the highest since comparable records began in 1992.
Yesterday’s FOMC meeting disappointed investors with the Federal Reserve unwilling to add more easing. Stocks in Europe were weaker and the U.S. markets expexted to open soft at 930am. In the FOMC statement the Federal Reserve said that there is an “apparent slowing in global growth and that strains in global financial markets continue to pose dignificant downside risks to the economic outlook.” While admitting the obvious, the Fed also said the U.S. recovery is moving slowly but in a positive direction.
November export prices were up 0.1% while import pices increased 0.7%; no reaction in the markets to the report. At 100pm the Treasury will finish this week’s auctions with $13 billion of 30-Year Bonds. It wil likely be very well bid as was yesterday’s strong 10-Year Note Auction. The 10-Year Note trading now below 2.00%; can it be sustatined? Since the beginning of November, every move below 2.00% has been short-lived. After the blown E.U. summit last week there is a renewed run for safety into U.S. treasuries. While history is important, this time may be different in that Europe has clearly demonstrated there is no immediate way to deal with the possibility of defaults in Italy and Spain. While unlikely defaults will actually occur, investors are not going to accept that as a given.
The weekly MBA mortgage Applications were weaker on purchases but better on refinances. The volume of purchase applications swung lower in the December 9 week; down 8.2% versus 8.3% in the prior week. Swings in weekly data can be severe but the overall trend for purchase applications has been positive. The volume of applications for reFinancing has also been positive, up 9.3% on top of the prior week’s 15.3% gain. Lowmortgage rates are behind the demand with the 30-Year averaging 4.12%, down 6 basis points (bps) for the lowest rate of the year.
At 100pm the Treasury will auction $13 billion of 30-Year Bonds. Look for another stong auction with good demand.
So far this morning not much movement in the bond and mortgage markets. The stock market opened weaker but also hs seen little movement. Technically the bond market remains bullish. The 10-Year Note is under 2.00%, which is nice, but can it hold? In past moves below 2.00%, buying dried up and the 10-Year Note moved quickly back above 2.00%. It depends on U.S. equity markets and the turmoil in Europe. After last week’s disappointment over the E.U. summit meeting that produced nothing, there was another round of safe haven buying. Based on history the 10-Year Note won’t hold below 2.00% for long. Take advantage of the current rates
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