U.S. interst rates remain in their tight trading ranges: the10-Year Note trades within a 4 basis point (bps) yield while mortgage prices are essentially unchanged now for over a month. Up and down with no real change ahead of the EU summit tomorrow. The summit isn’t likely satisfy; likely some kind of framework that will fall apart or drag along for another six monthes; too many opinions among sovereign countries that differ from what Germany wants. Germany holds the key to any program that may keep regional banks from financial stress and add releif to the debt ladened countries. Some positive news however; Italian and Spanish bond rates have peeked recently and have declined somewhat. More on anticipation that something will actually be accomplished than relief that the debt crisis is over. If the summit tomorrow doesn’t end with progress thoserates will likely increase again.
The ECB lowered its rate by .25% to 1.00%; it was widely expected. No noticible reaction in the markets; the second month in a row it lowered rates. The ECB is looking into lowering collateral criteria to get banks lending again rather than the central bank buying government bonds. The ECB’s priority appears to be to save banks rather than saving the debt ridden countries although banks and sovereign debt cannot be separated.
At 830am Weekly Jobless Claims were better than forecast. Claims fell 23k to 381k, the lowest in nine months; continuing claims fell more than estimates to 3.583 million from 3.757 million last week, the lowest continuing claims cince September 2008. The initial reaction pressured the rate markets and pushed stock indexes higher, however it didn’t last more than a few minutes. At 830am the 10-Year Note yield jumped to 2.10%, by 850am back to 2.05% (+1 bp) from yesterday’s close; stock indexes reversed and were weaker at 900am. MBS prices have been volatile; FNMA 3.5 Coupon at one juncture was up as much as 14/32 (.44 bps), FHLMC’s and GMNA’s prices were slightly weaker. Not sure why but MBS’s are trading in wide swings.
At 930am the DJIA opened +45, the 10-Year Note was at 930am was -2/32 and mortgage prices were unchanged.
At 1000am October Wholesale Inventories, not much of a mover, increased 1.6% on forecasts of +0.3%.
With tomorrow’s EU summit meeting, markets will likely end the session with little changes. Technically the bond and mortgage markets still hold slightly bullish biases; mostly throwing off neutral readings. The key 10-Year Note is comfortable between 2.00% and 2.12%. Lower interst rates will be hard to achieve with the U.S. economy continuing to improve albeit at a slow pace. Most of the economic reports in the past month have exceeded estimates, however unemployment remains high and the housing sector still mired in declining prices will restrain growth to a smail’s pace.
After flat trade most of the morning, mortgage prices at 930am were up 5/32 (.15 bps), unchanged.
For more info please visit www.crestico.com
