Monday, 2/8/10 10:10 AM
Treasuries and mortgages opened unchanged from Friday's close with the early trade in the stock index futures pointing to slightly better opening at 9:30. At 8:45 the 10 yr unch at 3.57%, mortgage prices -1/32 (.03 bp) and the DJIA +7. At 9:00 the DJIA +16, the 10 yr note -4/32 and mortgages -4/32 (.12 bp). At 9:30 the DJIA opened -24,10 yr note -3/32 and mortgage prices -3/32 (.09 bp).
There is no data today so trading will be forced by the equity markets, however this week Treasury has to raise $81B in auctions to fund the growing budget deficit. For months the demand for US debt has remained strong even as the amounts ratchet up quickly, no reason to expect this week's borrowing will be different. That said, traders usually approach supply with some trepidation. Treasury is saying that it will not continue to increase the amounts of the auctions held every other week as the size of the auctions is now enough to fund the deficit which this year will increase 14% from last fiscal year. This week's $81B of 3 yr, 10 yr and 30 yr notes and bond is the same as last month's.
Debate continues on what the economy will do; a double dip recession, just muddling along, or continued growth? Lots of opinions and rationale for each of the general scenarios. Focus will likely increase on how the consumer will do this year; markets until recently had ignored the impact of consumers as businesses cut inventories, emerging markets rallied and profits increased; now however, there is renewed realization that consumers drive the economy and businesses cannot be expected to grow and profit as long as consumer spending remains soft. The housing sector remains in crisis with property values still declining in many areas (certainly not increasing), consumer debt is still too high, and unemployment isn't expected to improve this year. Recent data shows that small businesses are not hiring (firms with 500 or less employees); small businesses have led economic improvement in each of the recent recessions and unless there is a pick up in small business jobs no recovery of substance can be expected.
The National Federation of Independent Business’s index of small-business optimism has been near historic lows for 15 consecutive months, declining to 88 in December from 88.3 in November, the federation reported Jan. 12. During the four prior recessions, it dipped below 90 only once.
This week there isn't much in the way of economic data to look at, what there is occurs on Thursday.
Tuesday;
10:00 Dec wholesale inventories (+0.5%)
1:00 $40B 3 yr note auction
Wednesday;
8:30 Dec Trade deficit (-$35.0B)
10:00 tentative Bernanke testifying at the House Financial Services Committee (Barney Frank's committee)
1:00 $25B 10 yr note auction
2:00 Jan Treasury budget (-$50.0B)
Thursday;
8:30 weekly jobless claims (-13K; continuing claims -12K)
Jan retail sales (+0.5%, ex auto sales +0.5%)
10:00 Dec business inventories (+0.3%)
1:00 $16B 30 yr bond auction
Friday;
9:55 U. of Michigan consumer sentiment index (75.0 frm 74.4 at the end of Jan)
The bond market and mortgages will take some direction from how stock markets trade today. Pre-market trade had the equity market looking better on the open but when it got down to it the indexes opened weaker. Recent trading in the equity market has been volatile and likely will continue to be choppy with big swings through the day but the bias presently is lower equity markets with the economic outlook a little murky and an overdue correction. Most analysts still hang on a 10% correction in the key indexes which if that actually develops the DJIA will drop to 9600 (presently 9960). So far this morning not much movement in the rate markets with supply starting tomorrow and uncertainty on how equities will do. Should be a generally quiet trade today unless there is a very big move in stock indexes.
PRICES @ 10:00 AM
10 yr note: 98.11 unch 3.57% unch
5 yr note: 100.02 unch 2.24% unch
2 Yr note: 100.06 unch 0.77% unch
30 yr bond: 97.23 +13/32 4.51% -3 BP
Libor Rates: 1 mo 0.228%; 3 mo 0.250%; 6 mo 0.386%; 1 yr 0.842%
30 yr FNMA 4.5 Feb: 101.10 -3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30 Friday)
15 yr FNMA 4.0 Feb: 102.01 -1/32 (.03 bp) (+6/32 (.18 bp) frm 9:30 Friday)
30 yr GNMA 4.5 Feb: 101.23 -3/32 (.09 bp) (+6/32 (.18 bp) frm 9:30 Friday)
15 yr GNMA 4.0 Feb: 102.25 -1/32 (.03 bp) (+6/32 (.18 bp) frm 9:30 Friday)
Dollar/Yen: 89.23 -0.25 yen
Dollar/Euro: $1.3658 -$0.0005
Gold Apr: $1065.80 +$13.00
Crude Oil Mar: $71.20 +$0.01
Goldman-Sachs
Commodity Index: 478.19 +2.54
DJIA: 9963.49 -48.74
NASDAQ: 2135.59 +5.53
S&P 500: 1063.45 -2.74