Last Friday Treasuries took a fairly large hit as traders backed away from heavy long positions into the long weekend. mortgage prices were soft all day on thin trading following the bond market. This morning Treasuries opened a little better with mortgage prices generally unchanged from Friday’s close. This week is still in holiday mode with many not working. The week doesn’t have much data and it is unlikely there will be much out of Europe to jostle markets until after the first of the year.
The bellwether 10-Year Note continues to resist trading much under 2.00% but the averages are moving lower daily from the 20-day average to the 100-day average. Unless the bond market continues to improve quickly the technical picture will change to a more bearish outlook. In our opinion unless there is an actual default in Europe the U.S. rate markets are going to turn slightly bearish with yields increasing somewhat. We’re not looking for a big increase in rates but the prolonged rally looks as if it has stalled. The U.S. Government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995; a very weak economy, no inflation and a huge fear factor contributed to the decline in rates.
This is the time of year when we hear a multitude of economic forecasts from economists. From what we have read over the last few days, the consensus for 2012 is better based on various surveys. Economists surveyed by Bloomberg and Reuters are expecting GDP growth in 2012 up +2.4% from 2011. Of course most forecasts have the caveat that Europe could drag the world back into recession and a global credit crisis if banks in the region fail or sovereign debt defaults occur. 2012 like 2011 will be held captive by Europe’s continuing inability to accomplish much so far.
The S&P/Case-Shiller Index of Property Values in 20 cities dropped 3.4% from October 2010after decreasing 3.5% in the year ended September, the New York-based group said today. The median forecast of 27 economists in a Bloomberg News survey projected a 3.2% decrease. This report gets little if any attention from bond traders because there’s no real news in it.
At 1000am December Consumer Confidence Index expected at 58 from 56 in November. As reported the Confidence Index jumped to its highest level since April 2011 to 64.5 from a revised November report at 55.2; the Present Situation Index increased to 46.7 from 38.3 and the Expectations Index up to 76.4 from 66.4. A much better outlook from last month and was better than expected. There was however no reaction to the data in either the stock or bond market…so far.
This Week’s Economic Calendar:
12/27/11: 0900am October Case/Shiller Housing Index (as reported down -3.4%).
1000am December Consumer Confidence Index (as reported 64.5 from 55.2).
12/29/11: 0830am Weekly Jobless Claims (up +4K to 368K).
0945am Chicago Purchasing Managers Index (down to 60.1 from 62.6).
1000am November Pending Home Sales (u p+0.6%).
At 0930am the DJIA opened down -20; the 10-Year Note was up +2/32 at 2.01% and mortgage Prices at 0930am were generally unchanged.
Not looking for much this week; another short week and year-end doldrums should keep things relatively quiet until next week. The technical picture is weakening the bond market. Unless the 10-Year Note improves and holds under 2.00% (which up until now has not occurred) rates from a technical outlook will likely begin to increase next week.
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