After a big drop in U.S. long-term Treasuries over the last few days, this morning the 10-Year Note is backing awaywith U.S. stock indexes aiming for a better open at 930am. At 900am the 10-Year Note opened -16/32 at 1.86% +5 bp and MBSs -7/32 (.22 bp) from yesterday’s closes. Europe’s stock markets traded better this morning. The U.S. indexes were better prior to 830am then got an additional boost when November Housing Starts and Permits were reported. Both Starts and Permits were expected to be weaker (-0.8% or starts and -2.8% on permits) as reported. Starts increased 9.3% and Permits increased 5.7%. Starts are the highest in a year; multifamily are starts are at a three year high. New construction of single-family houses rose 2.3% from the prior month to a 447,000 annual rate; the most since June. Work on multifamily homes surged 25% to an annual rate of 238,000; the highest level since September 2008.
Europe’s equity markets are better on data from Germany and the U.K. was better than expectations.German business confidence climbed in December, suggesting Europe’s largest economy is weathering the euro area’s debt crisis. The gauge of business confidence, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based Ifo institute said today. Consumer confidence in the U.K. rose in November from a record low as consumer expectations for the economy improved in the run-up to Christmas. Momentary reports are not likely to be sustainable but today they are pushing equity markets higher in the region.
Fitch lowered France’s credit outlook and put other euro-area nations on review December 16th, saying an overall crisis solution may be “technically and politically beyond reach.” Italy’s benchmark 10-year Bond yield returned yesterday above 7%, the level that led Greece, Portugal and Ireland to seek bailouts, before falling below the threshold.
At 100pm this afternoon Treasury will auction $35 billion of 5-Year Notes;yesterday’s 2-Year Note Auction wasn’t as well bid as we and many expected. Over the last couple of months Treasury auctions had been strong. Yesterday’s 2-Year Note auction wasn’t that weak, but in comparison to recent borrowings it was a little disappointing. The 5-Year Note auction today should see better bidding. If not look for yields to edge a little higher with $29 billion of 7-Year Notes tomorrow.
Stock indexes exploded on the open,up 160 on the DJIA then continued higher. After 10 minutes the DJIA was +218. Interest rates were up this morning on the equity market. The 10-Year Note at 1.87% is +6 bp. mortgageprices at 930am were -5/32 (.15 bp).
Long term rates are at levels that may be hard to continue lower;the 10-Year Note closed at 1.81% yesterday, 11 bps frm the all-time low at 1.70% hit in late September. If Europe wasn’t in the headlines everyday with its inability to remove fears that the E.U. will break apart, that Spain, Italy and the regions banks won’t implode in defaults and insolvency, U.S. interest rates would likely be 50 to 60 basis points higher. In the U.S. the economy is improving. About every data point over the last month has been better than thought. The only reason U.S.rates are at these low levels is because money from around the world is moving to the safest place…the U.S. Treasury market.
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