Wednesday, 3/3/10 10:14 AM
Another quiet start to the day; the 10 yr note and mortgages started unchanged this morning as did the stock indexes. At 8:15 the Feb ADP employment data was slightly weaker than forecasts, 20K jobs lost according to the payroll people, Jan however was revised lower, from -22K to -50K jobs. At 8:30 the 10 yr -3/32 at 3.62%, mortgage prices -1/32 and the DJIA index +4; not a lot of reaction to the ADP report. At 9:00 the 10 yr -6/32 at 3.63% +2 BP, mortgage prices -4/32 (.12 bp) and the DJIA +16. At 9:30 the DJIA opened +22, the 10 yr note -5/32 at 3.63% and mortgage prices -3/32 (.09 bp).
At 10:00 the Feb ISM services sector report rounds out the data today; forecasts were for the index to have increased a bit to 51.0 frm 50.5. The overall index jumped to 53.0; new orders component increased to 55.0 frm 54.7, prices index at 60.4 frm 61.2 and employment increased to 48.6 frm 44.6. The better report added more selling in the treasury and mortgage markets. (any read over 50 is considered expansion) At 10:05 mortgage prices -7/32 (.22 bp) compared to -3/32 (.09 bp) at 9:30.
Later this afternoon (2:00) the Fed will release its Beige Book, the Fed's detailed re;port on the economy from the 12 Fed districts. Generally more specifics but normally nothing substantially new in the data. The FOMC uses the Book at its meeting on March 16th.
The weekly MBA data out at 7:00 this morning for the week ending February 26, 2010. The Market Composite Index, a measure of mortgage loan application volume, increased 14.6% from one week earlier. On an unadjusted basis, the Index increased 15.5% compared with the previous week. The Refinance Index increased 17.2% from the previous week and the seasonally adjusted Purchase Index increased 9.0% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 0.4%. The refinance share of mortgage activity increased to 69.1 percent of total applications from 68.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4.8% from 4.7% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.95% from 5.03%, with points decreasing to 0.99 from 1.34 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.27% from 4.35%, with points increasing to 1.36 from 1.31 (including the origination fee) for 80% loans. This is the lowest 15-year fixed-rate observed in the survey since the week ending November 27, 2009. The average contract interest rate for one-year ARMs decreased to 6.77% from 6.80%, with points decreasing to 0.29 from 0.33 (including the origination fee) for 80% loans.
Dallas Fed Pres Fisher in a speech to the Council on Foreign Relations; Fisher is calling for an international agreement to break up financial firms that become "to big to fail". Fisher admitted that he is way out there with that suggestion but;.... “Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size,”..... “If we have to do this unilaterally, we should.” The Obama Administration wants to limit banks' proprietary trading and other operations that could bring down any bank. Bernanke wants to have a law to wind down failing institutions, but many see it as too loose and that it still implies some government back stop. The 10 largest U.S. banks’ share of the industry’s assets has increased to 60% in 2009 from 44% in 2000 and about 25% in 1990, Fisher said.
Philly Fed Pres Plosser was also speaking; talking about not taking authority away from the Fed in regulating financial firms.“The proposals (being talked about) for regulatory reshuffling, at best, miss the point of what is required for meaningful reform and, at worst, weaken the current regulatory framework,” according to Plosser. He is suggesting three key changes to the Fed's role; a new section of the bankruptcy code to unwind failing firms in a “credible” way without bailouts; “clarifying” the Fed’s supervisory role to let it collect more information on banks and their units; and requiring firms to hold “contingent capital,” or debt that would convert to equity in times of “financial stress.” Plosser also is suggesting requiring the Fed to testify on a semi-annual basis on financial stability in the system; the testimony would be similar to the already required semi-annual testimony on monetary policy.
The bellwether 10 yr note, driver for mortgages, continues to bang up against very hard resistance at 3.60% to 3.58%; the market spent a month between mid Jan and Mid Feb trying to fall below that area and each time failed. So far it isn't any different, the 10 has tested the level three times and each time buyers walked away. This morning it is the same, rates increasing after failing again yesterday at 3.60%; at 10:05 3.65% +4 BP so far today.
PRICES @ 10:10 AM
10 yr note: 99.25 -10/32 3.65% +4 BP
5 yr note: 100.11 -5/32 2.30% +3 BP
2 Yr note: 100.03 -2/32 0.82% +3 BP
30 yr bond: 100.10 -18/32 4.61% +4 BP
Libor Rates: 1 mo 0.228%; 3 mo 0.251%; 6 mo 0.383%; 1 yr 0.834%
30 yr FNMA 4.5 Mar: @9:30 100.31 -3/32 (.09 bp) (+1/32 (.03 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Mar: @9:30 101.29 -3/32 (.09 bp) (-2/32 (.06 bp) frm 9:30 yesterday)
30 yr GNMA 4.5 Mar: @9:30 101.16 -2/32 (.06 bp) (+2/32 (.06 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Mar: @9:30 102.20 -3/32 (.09 bp) (-1/32 (.03 bp) frm 9:30 yesterday)
Dollar/Yen: 88.71 -0.06 yen
Dollar/Euro: $1.3649 +$0.0035
Gold Apr: $1139.50 +$2.10
Crude Oil Apr: $80.25 +$0.57
Goldman-Sachs
Commodity Index: 522.07 +3.50
DJIA: 10440.89 +35.07
NASDAQ: 2285.74 +4.95
S&P 500: 1122.37 +4.06