This morning we read;
The Greece vote yesterday to some degree confirmed Greece will stay in the Union. At least for a while. The conservative party that backs keeping Greece in the EU won by less than a majority taking 30.1% of the vote with 65% counted while the radical Syriza party that wants to bolt the Union took 26.5%. The conservative New Democracy Party has 103 seats of the 300 seat parliament while Syriza has 70 seats; now the New Democracy Party has to form a government that has the votes to work out a plan to stay in the Union. The situation in Greece is far from settled and we continue to believe before its all over (whenever that may occur) Greece will leave the Union as will some of the other troubled debt loaded countries. In the meantime that will likely last another couple of years the world will have to put up with what now appears a failed experiment joining so many sovereign countries under one umbrella. Last week Alan Greenspan joined in with his comment, “ it was a noble but failed experiment. 17 countries, 17 parliaments, 17 central banks; 17 opinions; not an easy situation to expect something of substance.
Spain’s 10 yr debt rose above 7.0% today; Spain is slipping and may lose its borrowing party while getting money frm the EU and ECB to keep its banks from failing. Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.14%. The bonds are the worst performers among 26 developed markets since June 9, when the Economic minister said he would request as much as 100 billion euros ($127B) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets. The bank aid will increase Spain’s debt to about 90% of gross domestic product, Moody’s Investors Service said on June 14, since the sovereign is responsible for repaying the loans. That threatens to further limit its ability to sell bonds, Moody’s said, as it dropped Spain’s rating three levels to Baa3, one step above junk. Italy’s 10-year yield climbed 14 basis points to 6.06%. The U.K. two-year gilt yield slid to as low as 0.173%, arecord.
G-20 countries meeting in Mexico with the topic being Europe. These G meetings usually don’t amount to much; photo ops and quotes structured to make leaders look good. Nevertheless there will be comments about how G-20s are concerned and will help if certain conditions are met. After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis — and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter. Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy.
Treasuries and mortgages doing slightly better this morning as the stock indexes slightly weaker. At 9:30 the DJIA opened -47, NASDAQ -16; the 10 yr note +5/32 at 1.57% -1 bp; 30 yr mortgage prices at 9:30 +1/32 (.03 bp).
The only data today; the June NAHB housing mkt index was expected at 28 unchanged from May; the index increased 1 point to 29 after increasing 4 points in May. The index is at its best level since May 2007; in that context it clearly shows how weak the housing market is.
This week most all data is directed to the housing sector with May housing starts and permits on Tuesday and May existing home sales on Thursday. Thursday we get the weekly unemployment claims currently expected -6K at 380K. Thursday also has the key Philadelphia Fed business index, expected at -3.5 frm -5.8 in May.
It looks like a quiet day; interest rate markets about unchanged and the stock market showing little appetite for rallying so far. If he stock indexes turn positive the bond andmortgage markets will likely see some selling. With the Greek vote behind us the next key event is the FOMC policy statement on Wednesday at 12:30 then Bernanke’s press conference at 2:15. In the absence of any news out of Europe the US markets are not likely to change much until Wednesday afternoon.
