Treasuries and mortgage markets opened unchanged this morning. At 830am two data reports:March Retail Sales, expected up 0.3%, was up 0.8% and excluding auto sales +0.8% (excluding autos expected up 0.6%). April Empire State Manufacturing Index was expected at 17.5 from 20.2 in March. As reported the overall index plunged to 6.56; new orders component at 6.48 from 6.84 and the employment component at 19.28 from 13.58. Over zero is considered expansion; more indication that there is a slowing in the manufacturing sector. The Retail Sales report is trumping the Empire State data this morning. The stock index was better and at 900am the 10-Year Note, after being up slightly (+3/32) was -1/32 at 2.00%, mortgage prices at 900am down -2/32 after opening +3/32 prior to the 830am data.
Asian stocks fell overnight, with the regional benchmark index headed for its biggest drop in almost two weeks after the cost of insuring against a Spanish default climbed and U.S. Consumer Confidence dropped last Friday, clouding the earnings outlook for Asia’s exporters. Stocks also fell after 5-year credit-default swaps on Spain surged to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.
European stocks rebounded from four consecutive weeks of losses and U.S. index futures advanced after American Retail Sales increased more than forecast in March. Spanish bond yields climbed before a debt sale while the euro weakened. Credit-default swaps on Spain jumped 17 bps to 519. Contracts on Italy rose seven bps to 441, the highest level in almost three months. Spanish 10-Year Bond yields jumped as much as 18 bps, to 6.16%, the highest level since December 1. Five-year credit-default swaps linked to Spanish bonds jumped to an all-time high. Spain will sell 12-Month and 18-Month Bills tomorrow, followed by auctions of debt due in October 2014 and January 2022 on April 19.
At 930am the DJIA opened up +85, the 10-Year Note traded unchanged At 1.99% and 30-Year MBS prices unchanged.
Although Europe’s debt issues remain,this morning there is a little relaxation about the possibility of default as EU ministers are calling for the ECB to step up and buy Spain’s bonds to keep their interest rates from increasing more. So far nothing from the ECB but words implying it is “prepared” to act if necessary. The U.S. bond market remains the safe port for investors and has been one of the reasons we have seen U.S. rates fall over the last two weeks. The U.S. stock market is rallying this morning on the March Retail Sales increase but U.S. interest rates are not seeing any selling on the better stock indexes. As long as the debt problems in Europe continue it should keep a bid in U.S. treasuries, thus supporting the mortgage markets.
At 1000am February Business Inventories were expected up 0.5%, as reported inventories increased 0.6%, sales were up 0.7% with an inventory to sale ratio unchanged from January at 1.28 months. Also at 1000am the April NAHB Housing Index, expected at 29 from 28 in March, fell to 28, the first decline in 7 months; the single family index at 26 is down from 29. The drop in the NAHB index sparked some increases in bond and mortgage prices. The DJIA off its high, the NASDAQ has been weaker all session so far.
Technically the treasury and mortgage markets remain bullish. The 10-Year Note so far today is holding a gain as are mortgage prices, but at 930am both were flat on the day and now boosted by the NAHB Housing Market Index and stock indexes off their best levels. It Looks like the 10-Year Note is headed to 1.90% (at 1010am was at 1.96%, -3 bps today).
