mortgage prices started better this morning with the 10-Year Note yield at 1.92% down 4 bps from Friday’s close. There are no economic releases today. The stock market is opening lower supporting the decline in rates in early activity. U.S. stock futures are lower this morning, following last week’s advance after data showed that manufacturing shrank in the euro-area and China while concern grew about Europe’s sovereign debt crisis. Most global markets are weaker as euro-area services and manufacturing declined more than estimated in April, while data indicated China’s production will contract for a sixth month.
Europe is in economic chaos as the debts of many countries are dragging its economy down. Investors are moving more money to safety into U.S. treasuries forcing U.S. rates back to levels of 2 months ago. The Euro nations owe 386 billion euros ($508 billion) in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable. Concern that Spain and Italy may follow has led their bonds to decline for six weeks, pushing yields toward the 7% level that triggered the other aid programs. A euro-area composite index based on a survey of purchasing managers in both services and manufacturing fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Economists had forecast an increase to 49.3, according to the median of 17 estimates. Like the U.S. ISM Services and Manufacturing Indexes, below 50 is considered contraction.
In the U.S. this week it is all about the FOMC policy statement at the conclusion of the meeting on Wednesday afternoon and the following press conference Bernanke will hold. Lots of talk about the Federal Reserve stepping in for another QE, he likely will spend much of his press conference being questioned about it, and being questioned about what he believes it will accomplish. More jobs? Hardly. Strengthening the economic outlook? Hard to say. Another huge question: “How much lower can U.S. interest rates fall even with another easing? The Federal Reserve is already buying the equivalent of all treasuries issued this year and last.
Treasury will auction $99B of notes this week beginning tomorrow with $35B of 2-Year Notes, Wednesday $35B of 5-Year Notes and Thursday $29B of 7-Year Notes.
The DJIA opened down -130, NASDAQ down -33, S&P down -14; the 10-Year Note at 930am at 1.92% (-4 bps), MBS 30-Year price up +6/32 (.18 bps).
Putting some perspective on U.S. interest rates, the 10-Year Note that sets the tone for mortgage rates is trading at 1.92% this morning. There is strong technical resistance on the 10-Year Note at 1.90%. There have been only 10 trading sessions where the 10-Year Note traded below it since last November 23rd. Three times since then the 10-Yer Note went below 1.90%, it held under it for no more than three days.
