|Yesterday the 10 yr note failed again on a rally to break its rock-solid resistance at 1.86%; the note yield yesterday declined from 1.94% on Monday to 1.86% then lost momentum to close at 1.90%. This morning the 10 opened at 1.90% and 30 yr MBS price up 5 bps at 8:45. At 8:30 the April NY Empire State manufacturing index failed to meet forecasts of +7.0; the index plunged into contraction territory at -1.19. It was only the second time the index showed contraction in the last 23 months; the other negative reading was in December which was just about the beginning of this indicator’s slowdown. Tomorrow the Philly Fed business index will provide a wider look in the northeast.
Earlier this morning the weekly MBA mortgage applications were down 2.3%; purchase apps down 3.0%, re-finance applications down 2.0%. The last three weeks have seen increases in apps before today’s data. Year-on-year, the index is still up a strong 7.0%. MBA said 30 yr conforming loans rate at 3.87% (with points).
China’s Q1 GDP showed growth at 7.0% as expected. China is slowing at the slowest since 2009, yet 7.0% is nothing to sneeze at. The IMF, meanwhile, sees Chinese expansion slowing even further to 6.8% this year and 6.3% in 2016 (see chart in yesterday afternoon report). It wasn’t all bad though; the services sector for the first time accounted for more than half, at 51.6%, of GDP in the first quarter. Consumption growth was also solid. Chinese leaders are working toward lowering growth in moves to deleverage its financial system. No noticeable reaction to the report.
March industrial production and factory use at 9:15; production was expected down 0.3% and capacity utilization at 78.7% from 78.9%. Another weak report, industrial production reported down 0.6% and cap utilization 78.4%, Feb revised to 79.0 from 78.9%.
At 9:30 the DJIA opened +72, NASDAQ +18, S&P +8. Weaker than expected data this morning boosting stocks on thoughts the Fed will have to wait to begin increasing rates. The 10 yr also better at 1.88% down 2 bps; 30 yr MBS prices +13 bps from yesterday’s close and -1 bp from 9:30 yesterday.
At 10:00, April NAHB housing market index was expected at 55 from 53 in March. The index hit at 56 from revised 52 in March.
Later this afternoon the Fed will release its Beige Book at 2:00. The Book includes specifics from each of the 12 districts; the data is one of the tools the FOMC uses at their meetings.
Like that broken record that continues to click, click along; the 10 has yet to break its resistance at 1.86% but our work is still slightly bullish. Technicals looking OK except the longer it takes to break resistance the more concerned we are. Today the sum of the data is supportive to the bond and mortgage markets yet the best we have had today so far is 1.88%. The risk/reward in floating now is tilting more to increased risk; until (if) the 10 breaks 1.86% on a close there isn’t much opportunity at present levels.
PRICES @ 10:10 AM</p>
10 yr note: +5/32 (15 bp) 1.88% -2 bp
5 yr note: +3/32 (9 bp) 1.32% -2 bp
2 Yr note: +2/32 (6 bp) 0.51% -1 bp
30 yr bond: +4/32 (12 bp) 2.54% unch
Libor Rates: 1 mo 0.181%; 3 mo 0.275%; 6 mo 0.405%; 1 yr 0.703%
30 yr FNMA 3.0 May: @9:30 102.58 +13 bp (-1 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Apr: @9:30 105.06 -2 bp (-7 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Apr: @9:30 103.63 +14 bp (+4 bp frm 9:30 yesterday)
Dollar/Yen: 119.31 -0.09 yen
Dollar/Euro: $1.0661 +$0.0006
Gold: $1194.00 +$1.40
Crude Oil: $54.35 +$1.06
DJIA: 18,128.79 +92.09
NASDAQ: 4995.08 +17.79
S&P 500: 2105.77 +9.93