The bond market opened a little better this morning with slightly weaker stock indexes. The 10-Year Note at 1.91% and MBS prices up +4/32 (.12 bps) at 830am. March Personal Income at 830am was up 0.4% a little better than forecasts, Personal Spending though at +0.3% was a little softer than thought. On the report treasuries and mortgages didn’t show any reaction. U.S. stock indexes early this morning traded lower, following the markets in Europe.
The DJIA opened down -10, NASDAQ down -7, S&P down -2; the 10-Year Note up +4/32 1.92% (-1 bps) and mortgage prices at 3/32 (.09 bps) from Friday’s close.
At 945am the April Chicago Purchasing Managers Index, expected at 60.0 from 62.2 in March fell to 56.2. The three components; New Orders at 57.4 from 63.3, Prices Paid at 68.6 from 70.1 and Employment at 58.7 from 56.3. Overall it was a weaker report adding to concerns of slowing economy. The weakness is primarily due to inventory levels declining but respondents to the survey also were saying they were looking for a strong summer. The DJIA slipped a little on the report but mortgage prices and the 10-Year Note didn’t show much initial reaction.
Treasuries are going for their biggest monthly gain since September as slowing U.S. economic growth and concern for Europe’s debt crisis are worsening, increased demand for the relative safety of U.S. treasuries. 10-Year Notes are slightly higher for a third day with Spain going into its second recession since 2009 and economists said U.S. reports this week will show growth in manufacturing and services slowed. Not only Spain, the UK is in a double-dip recession since the 1970s as its longest peacetime slump for a century persists. UK GDP declined in the last two quarters. The increasingly serious question for Europe is whether the massive austerity cuts demanded have failed to gain support and are for a number of countries unachievable, leading to further deterioration of economies and dragging other global economies down with it. In the U.S. economists predict Labor Department data this week will indicate U.S. hiring increased in April, though not enough to reduce the jobless rate. Consumer Spending climbed in March, but a little weaker than estimates. The concern we have for the 10-Year Note is that it still has not shown the ability to hold under 1.90% on rallies going back to October.
This week may point to a slowdown in manufacturing, services and construction. A gauge of factory activity (ISM manufacturing) will fall to 53.0 from 53.4 in March, according to the median forecasts. An index of services (ISM services sector), the largest part of the economy, will decline to 54.1 from 56.0, while a construction measure will also fall, economists said in separate surveys. A reading above 50 indicates expansion. We won’t put much confidence on the estimates that recently have been more dart tossing than accurate assessments. This week is more about Employment than any other report however the data this weeks has a number of key points.
The 10-Year Note is approaching 1.90%. Since last October the 10-Year Note has fallen below it on three occasions but in each case the note was unable to hold under it. Not sure what will occur now but history does have an impact; a sustained decline under 1.90% would embolden traders to push rates lower, the next technical resistance under 1.90% at 1.80%.
