|More inital selling this morning after prices slipped yesterday. Preparing for tomorrow’s FOMC policy statement. The 10 at 9:00 1.954% +2.5 bps, 30 yr MBS price -20 bps frm yesterday’s close. Feb Case/Shiller 20 city home price index expected +4.8% hit at +5.0% yr/yr and +0.9% frm January against expectations of +0.7%; extending its best performance since late 2013. Old data and we generally don’t put much emphasis on the report, nevertheless a positive for the housing sector. While we don’t put it on the top of the last, the announcement added additional pressure on MBS prices.
The UK released its Q1 GDP this morning; at +0.3% was the softest expansion since Q2 2012. GDP was half of what Q3 was; estimates were for +0.5%.
Greece’s Prime Minister is said to have been beaten up in closed door meetings in Latvia.Finance ministers said Varoufakis’s handling of the talks was irresponsible and accused him of being a time-waster, a gambler and an amateur, a person familiar with the conversations said, asking not to be named because the discussions were private. The Dutch chairman of the euro-zone finance chiefs’ group said “It was a very critical discussion and it showed a great sense of urgency around the room,” he said at a press conference after the meeting. Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.” Reporting on Greece/EU talks is increasingly more like a soap opera. The governing council is due to discuss the matter on May 6, according to two people with knowledge of the talks.
All focus in the bond and mortgage markets today is on tomorrow’s FOMC policy statement.The market has changed the outlook for a June increase in the FF rate, now thinking is a September lift off. Guessing on the timing is based on incoming economic reports, so the estimate of when should not be anything more than a momentary view. The weak Q1 GDP (the first look tomorrow at 8:30) is being discounted on weather conditions in the quarter that slowed spending and business expansion. However the statement is framed it isn’t going to be anything surprising; look for about the same statement issued after the March meeting.
At 9:30 the DJIA opened +35, NASDAQ -2, S&P +1. 10 yr 1.95% +2 bps, 30 yr FNMA 3.0 coupon -14 bps frm yesterday’s close and 19 bps lower than at 9:30 yesterday.
At 10:00 April consumer confidence from the Conference Board, expected at 103.0 frm 101.4, dropped to 95.2, the lowest index this year. There was no reaction on the soft confidence but the decline won’t go unnoticed at the FOMC meeting. April Richmond Fed manufacturing index -3.0 frm -8.0 in March; two months of decline not seen since 2014, it too won’t get initial reaction. It is all about tomorrow. Again though it is another weaker than expected report, forecasts were for -2.0.
Yesterday Treasury sold $26B of 2 yr notes in what was described as a modest auction in terms of demand, demand was stronger than last month’s 2 yr but was weaker compared against the last 12 auction averages. Tis afternoon at 1:00 Treasury will sell $235B of 5s, a more significant auction; tomorrow $29B of 7s one hour prior to the FOMC policy statement.
Still stuck in the range that has held now for 29 sessions. Like that spring we mention frm time to time, coiling tighter and tighter. Whatever way the 10 and MBS break out it will be swift and a large move. Global economic conditions, the US economy based n Q1 data weak, but discounted presently. Until April data flows the general consensus frm Wall Street is onward and upward for stocks and interest rates.
PRICES @ 10:15 AM
10 yr note: -4/32 (12 bp) 1.94% +1 bp
5 yr note: -2/32 (6 bp) 1.35% +1 bp
2 Yr note: unch 0.54% unch
30 yr bond: -15/32 (47 bp) 2.64% +3 bp
Libor Rates: 1 mo 0.181%; 3 mo 0.279%; 6 mo 0.408%; 1 yr 0.705%
30 yr FNMA 3.0 May: @9:30 102.16 -14 bp (-19 bp frm 9:30 yesterday)
15 yr FNMA 3.0 May: @9:30 104.78 -13 bp (-6 bp frm 9:30 yesterday)
30 yr GNMA 3.0 May: @9:30 103.02 -17 bp (-16 bp frm 9:30 yesterday)
Dollar/Yen: 119.02 -0.20 yen
Dollar/Euro: $1.0945 +$0.0054
Gold: $1202.00 -$1.20
Crude Oil: $57.10 +$0.11
DJIA: 17,948.35 -89.62
NASDAQ: 5011.88 -48.36
S&P 500: 2095.63 -13.29