|Weekly claims at 8:30 were a little better than expectations but overall not deviant. Claims were expected about unchanged frm last week, as reported declined 9K to 282K; the 4 wk average 297K frm 304,750 last week, continuing claims declined 6K to 2.42 mil. Prior to the report the 10 yr and MBSs were unchanged after yesterday’s price declines, after the report no movement. US stocks took serious hits yesterday, the DJIA down 292, NASDAQ -118, S&P -30. This morning in early trade the indexes were weaker again.
Crude oil continues to increase, the dollar continues to weaken against the yen and euro;both have reversed their recent moves that were building blocks for the drop in interest rates. Gold, also has swung around and has been increasing recently. Yesterday Treasury sold $35B of 5 yr notes at a very weak auction. In the near term all of the fundamentals that drove rates down have changed in the last few trading sessions although our work remains bullish as long as the 10 yr doesn’t move above 2.00%; a psychological level that has traders’ and investors’’ attention and where the key short term moving averages are clustered (at 9:00 the 10 1.94% +2 bps frm yesterday’s close.
James Bullard (St. Louis Fed) taking a trip to Europe is in Germany today saying about what he said yesterday. “Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years,” Bullard, who doesn’t vote on monetary policy this year, said in a speech in Frankfurt on Thursday. “Even with some normalization, monetary policy will remain exceptionally accommodative.” ….“The FOMC has appropriately returned to data-dependent monetary policy,” Bullard said. “The Committee can return to more standard monetary-policy decision-making, under which an appropriate policy rate is decided at each meeting,” Bullard, who doesn’t vote on monetary policy this year, said in a speech in Frankfurt. “Even with some normalization, monetary policy will remain exceptionally accommodative.”
At 9:30 the DJIA opened better than earlier trading when the index traded down 180 points, opening -109, NASDAQ -50, S&P -11. The 10 at 9:30 1.95% +3 bp and 30 yr MBS price -13 bps frm yesterday’s close and down 57 bps frm 9:30 yesterday.
A simmering revolution in Yemen has begun to boil over in recent days as the president went into hiding. Shiite militants, allegedly backed by Tehran, have been steadily claiming territory in Yemen, the region’s most impoverished country. Saudi Arabia announced that it would begin military operations against the rebels on last night, and this has lit a fire under crude oil prices; the nation itself is not a large oil producer (less than 150,000 barrels/day), but its strategic importance on the strait connecting the Red Sea to the Gulf of Aden, has not been lost on Saudi Arabia or the oil market. The US still is an importer of crude, about 9 mil barrels a day and the Saudis are intent on keeping their output at current levels.
The elements that pushed interest rates lower have changed, at least for the moment; the dollar is softening, crude oil is increasing and recent data frm Europe has been better than expected. Technicals still bullish as long as the 10 doesn’t break above 2.00%, now 1.96% and moving higher. Tuesday the 10 was 1.87%, yesterday 1.92% and this morning 1.95%; MBS prices since Tuesday’s close down 48 bps at 9:30 this morning. It is the volatility we have been talking about and isn’t confined to bonds, stock indexes are doing what they have done all year; wide swings.
Treasury will auction $29B of 7 yr notes at 1:00; yesterday’s 5 yr stunk in terms of demand and led to a raid decline in MBS and treasury prices and in turn led to lenders re-pricing. Be alert at 1:10 this afternoon if you are floating.
Hanging tough. We remain bullish but changes in currency markets and the increase in crude prices has lessened that bullish view somewhat. 2.00% on the 10 is where the rubber meets the road, it has to hold there on additional selling otherwise the run lower will be in jeopardy
PRICES @ 10:00 AM
10 yr note: -10/32 (31 bp) 1.96% +4 bp
5 yr note: -5/32 (15 bp) 1.45% +3 bp
2 Yr note: unch 0.61% unch
30 yr bond: -24/32 (75 b p) 2.55% +4 bp
Libor Rates: 1 mo 0.172%; 3 mo 0.269%; 6 mo 0.398%; 1 yr 0.692%
30 yr FNMA 3.0 Apr: @9:30 101.97 -13 bp (-57 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Apr: @9:30 104.61 -2 bp (-22 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Apr: @9:30 102.67 -13 bp (-51 bp frm 9:30 yesterday)
Dollar/Yen: 119.15 -0.34 yen
Dollar/Euro: $1.0958 -$0.0012
Gold: $1204.80 +$7.10
Crude Oil: $50.67 +$1.46
DJIA: 17,630.79 -87.75
NASDAQ: 4839.68 -36.83
S&P 500: 2051.32 -9.73