Before 830am the treasury markets were trading slightly weaker and stock indexes a little better, it changed after the 830am release of Q4 GDP which anticipated a growth rate of 3.1% and reported +2.8%; the 10-Year Note bounced up a little and mortgage prices improved and stock indexes declined. The report is the first of three over the next three months and usually gets revised when the preliminary report hits next month. Nevertheless after the Federal Reserve released its weaker forecasts for growth in 2012, and 2013 on Wednesday the softer Q4 growth is getting a lot of attention this morning. If inventory builds are removed GDP was up just 0.8%. For all of 2012 growth up 1.7% compared with +3.0% in 2010. Consumer spending in Q4 was up 2.0%, economists were projecting +2.4%, Q3 up 1.7%…holiday shopping was less than estimates. Q4 savings rate declined to +3.7%, the lowest in years.
The bond and mortgage markets rallied a little on the 830am weaker GDP data. MBS trading was volatile with prices swinging from +.22 bps to +.09 bps; at 915am +.09 bps with the 10-Year Treasury +4/32 at 1.93% -1 bps. At 930am the DJIA opened down -36, the 10-Year Note up +6/32 to 1.92% (-2 bps) and mortgage prices +3/32 (.09 bps).
The final data this week at 955am, the University of Michigan Consumer Sentiment Index,expected at 74.0, as reported 75.0, up from 69.9 at the end of December. Current conditions at 84.2, expectations at 69.1 from 68.4 two weeks ago, 12-month outlook 82 from 79 two weeks ago. The sentiment and current conditions are the highest since February 2011. There was no reaction to the data in either stock indexes of the bond markets.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said authorities are “very close” to reaching an agreementon a private-sector involvement in a Greek debt swap this month. Greece and its creditors are haggling over the terms of an accord to reduce the country’s borrowings, three months after private bondholders agreed to a 50% cut in the face value of more than 200 billion euros ($263B) of debt by voluntarily swapping bonds for new securities. Earlier this week officials were saying a deal would be resolved by today, now the talk is “in the next three days”.
Technicals are looking more bullish,the 10-Year Note has more to go before it runs into resistance. The rest of the day the bond and mortgage markets will take their lead from the equity markets, stock indexes at 1000am at their worst of the day so far.
