|A good start this morning, not much but the recent increase in rates has held support levels….so far. The 10 has to stay below 2.00% to keep the bond and MBS markets in their bullish patterns. Wednesday and yesterday saw strong selling taking the 10 yield up 13 bps in yield and dropped MBS prices down 74 bps. Crude oil increased and the dollar lost ground against the euro and yen, both turned the short term outlook murky, but as long as the 10 stay’s below 2.00% our near term outlook remains positive. That said, the magnitude of the selling the last two days is a worrisome situation.
At 8:30 the final Q4 GDP was unchanged from the preliminary report last month, the consensus was for GDP to increase to +2.4% frm 2.2% growth on the prelim, the final reading 2.2%. Yr/yr GDP growth, 2.4% down frm 2.7% yr/yr in Q3 2014. Corporate profits after tax, without inventory valuation and capital consumption adjustments, fell at a 3% pace from the third quarter. That was the largest quarterly drop in profits since the first quarter of 2011. Profits in the fourth quarter rose 2.9% from a year earlier, slipping from 5.1% annual growth in the third quarter. Consumer spending climbed at a seasonally adjusted annual rate of 4.4%, up from an earlier estimate of 4.2%, the most since Q1 2006. The housing market expanded at a modest pace. Residential investment grew at a 3.8% pace in the fourth quarter, up from 3.2% in the third quarter.
Hanging on by our thumbs now; the decline in the dollar and the recent run-up in oil prices took two of the drivers that dropped rates away. Yemen rebels causing Saudi Arabia and Egypt to retaliate with air strikes and possible ground troops pushed crude prices up, Saudis are intent on continuing oil production and exports at current levels are fearing the access to shipping ports may be hampered by fighting in Yemen, The dollar’s strong gains over the last few weeks has reversed this week, the dollar traded at $1.05 to 1 euro last week, now at $1.09; doesn’t look like much but it is a big swing. Europe’s economic outlook has improved since the ECB started buying bonds frm EU members, Mario Draghi saying growth in the EU this year at +1.5%; extremely optimistic but traders have reacted, selling the dollar and buying the euro.
If you have been following us, we have tried our best to warn that market volatility would increase since last week’s FOMC meeting. Volatility is nothing more than uncertainty. Uncertainty about oil prices, uncertainty about currency movements, uncertainty about when the Fed would begin increasing the FF rate, uncertainty about the over-bought stock indexes—-no matter which way one looks investors and traders are uncertain as is clearly evidenced by recent volatile swings.
At 9:30 the DJIA opened +6, NASDAQ +8, S&P +1. 10 yr at 9:30 1.97% -3 bps and 30 yr MBS price +16 bp frm yesterday’s close and -7 bps frm 9:30 yesterday. Morning pricing should have been up 16 bps frm yesterday’s close.
At 10:00 the U. of Michigan consumer sentiment index expected at 92.1 frm 91.2 was better at 93.0 but still lower than the final read in Feb at 95.4. Late this afternoon Janet Yellen is scheduled to speak on monetary policy in San Francisco at 3:45 pm. 15 minutes before the equity market closes, if we get her prepared txt prior to the close it might be an interesting close.
Holding at key support levels today after the strong selling the last couple of sessions. MBS risk this morning, 57 bps lower before MBSs would turn near term bearish. On the 10 as noted, 2.00% to 2.02% has to hold. So far we are still dancing but more a waltz than twisting the night away.
PRICES @ 10:10 AM
10 yr note: +9/32 (28 bp) 1.97% -3 bp
5 yr note: +6/32 (18 bp) 1.42% -5 bp
2 Yr note: +2/32 (6 bp) 0.58% -4 bp
30 yr bond: +20/32 (62 bp) 2.55% -4 bp
Libor Rates: 1 mo 0.175%; 3 mo 0.268%; 6 mo 0.397%; 1 yr 0.697%
30 yr FNMA 3.0 Apr: @9:30 101.89 +16 bp (-7 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Apr: @9:30 104.55 +7 bp (-6 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Apr: @9:30 102.59 +5 bp (-6 bp frm 9:30 yesterday)
Dollar/Yen: 119.14 -0.05 yen
Dollar/Euro: $1.0864 -$0.0020
Gold: $1198.90 -$5.90
Crude Oil: $50.48 -$0.95
DJIA: 17,702.32 +24.09
NASDAQ: 4887.70 +24.34
S&P 500: 2060.74 +4.59