Interest rates a little higher this morning with global stock markets improved.The 10 yr at 9:00 at 1.83% +2 bp with 30 yr MBS price down 15 bp frm yesterday’s close. News out of Europe continues to improve with increasing belief that some kind of plan is taking shape, as long as that is the thinking the interest rate markets will find it very difficult to decline while keeping US and global equity markets well supported. Recent improvement in US stock indexes, although on low trading volume, have been rock solid holding improvements.
German 10-year bunds fell a second day (price), pushing the yield four basis points higher to 1.55%. There is mounting speculation leaders will make progress on Greece’s debt crisis at meetings this week. Concessions are possible for Greece so long as Prime Minister Antonis Samaras shows a willingness to meet the main targets set out in his country’s bailout program, a senior lawmaker with Chancellor Angela Merkel’s party said. Irish benchmark yields fell to the lowest level since October 2010. Jean-Claude Juncker, the head of the euro group of finance ministers, visits Greece tomorrow. Merkel and French President Francois Hollande meet in Berlin on Thursday, before holding separate talks with the Greek Prime Minister later in the week. Is this time different from previous failed attempts to ease the EU debt crisis? Looks like it based on declining interestrates in Europe; Spain’s two-year note yield fell for a sixth day, with the yield dropping nine basis points as the government sold 4.51 billion euros ($5.6B) of bills, meeting its maximum target. Portuguese 10-year bonds advanced, pushing the yield down as much as 27 basis points to 9.34%, the lowest since May 2011.
Europe is a focal point for the increase in interest rates but that isn’t all; a few weeks ago it was generally thought the Fed would launch another easing move, buying treasuries and mortgage-backed securities to keep long term rates form increasing. That has almost completely evaporated over the last two weeks as most of the recent economic data has been at or better than estimates. The Fed really doesn’t want to ease anymore, its balance sheet is expanding too much and there is a growing resistance within the FOMC group to another easing. Any Fed support won’t add jobs or goose the economic recovery, there is still worry at the Fed that continued easing might set of an inflationary spiral. It is difficult though to get our hands around an inflationary fear with the US and global economies soft; nevertheless inflation concerns have increased somewhat. Regardless of what we may think, the markets rule.
The DJIA opened +10, NASDAQ +11, S&P +4; the 10 yr note at 1.83% +2 bp; MBS 30 yr price -14 bp frm yesterday’s close but about unchanged from 9:30 yesterday.
No economic data this morning but at 2:00 this afternoon the minutes from the August 1st FOMC meeting will be out. Generally there isn’t much in the minutes that hasn’t already been digested but always interesting to get more of a feel for how the meeting went in terms of debate.
The 10 yr note yield is finding some temporary support at its 200 day average at 1.87%/1.86%. Very near term bearish momentum has waned in what we consider oversold levels on a number of momentum oscillators, but the best we have seen over the last few days is more of a consolidation rather than retracement. As long as optimism continues that Europe is about to make some progress on the debt mess there is not much motivation to drive interest rates down as the fear factor has declined recently taking the need for safety down a few notches. We have been here before on optimism over the EU, only see the leaders fail; as long as there is belief that the EU leadership may actually find some solution to staving off defaults in the euro region interest rates are unlikely to decline much
