U.S. Treasury rates increased this morning taking the 10-Year Note to its key technical and psychological level of 2.00% at 800am this morning. Stock indexes were higher indicating a strong open after equity markets in Europe improved. The MBS market is a little weaker but continues to hold steady against treasuries. The Treasury begins this week’s auctions today at 100pm with $32B of 3-Year Notes, tomorrow $21b of 10-Year Notes and Thursday $13B of 30-Year Notes. Two weeks ago the Treasury sold $99B of 2-Year Notes, 5-Year Notes and 7-Year Notes; none of the auctions met with the strong bidding that had been the case for the past few months.
Europe still has major influence in U.S. markets, however for the present the worries over defaults and safe haven moves into U.S. treasuries has waned somewhat. The 10-Year German bond underperformed as all their euro-area peers European stocks rose, curbing demand for the safest fixed-income assets. Angela Merkel said yesterday that euro-area nations are considering accelerating capital contributions to the region’s bailout fund. French bonds rose after Fitch Ratings said the nation will probably retain its credit grade unless the European debt crisis worsens. Merkel will meet IMFs Lagarde today after discussions with French President Nicolas Sarkozy yesterday. The leaders said they plan to drive forward their agenda for stricter budget rules as they seek to craft a master plan for rescuing the euro.
French business confidence climbed from a two-year low last month and industrial output increased in November,indicating the threat of a recession in the euro-region’s second-biggest economy is easing. The numbers suggest that France may be able to skirt a deep recession as European leaders impose austerity measures to contain the region’s sovereign-debt crisis. The confidence reading suggests French gross domestic product will stall and not shrink in the fourth quarter, the Bank of France said today.
At 930am the DJIA opened up +110, the 10-Year Note sat at 2.00% and mortgage prices were down 3/32 (.09 bp).
The only data today is November Wholesale Inventorieswhich was expected up +0.5%, reported up 0.1%, sales up 0.6% with a 1.15 month inventory to sale ratio. No reaction to the data.
This morning the 10-Year Note at 2.00%, in previous moves to 2.00% the 10-Year Note has managed to hold and not push above it. Although many analysts and Wall Street firms are improving their forecasts for the U.S. economy this year, and some are actually recommending moving out of fixed income treasuries, the bond and mortgage markets have so far been able to resist moving higher in rates. As noted yesterday, the technical momentum oscillators are weakening; the 20-day average today is at 1.99% and so far holding. The bond market is losing momentum, if the 10-Year Note breaks and holds above 2.00% it will likely test 2.04%; as long as that level holds the outlook will continue to project lower rates. A move over 2.04% will signal the end to the move projecting the 10-Year Note back to 2.25%. Europe plays a significant role as does the U.S. equity market.
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