Posts Tagged → interest rates
More Doom and Gloom From The Economy, Rates to Improve?
Treasuries and mortgage markets were rallying early and got an additional boost at 8:30 on weekly jobless claims. Claims were thought to be about unchanged, as reported up 9K to 429K, the 11th week in a row over the key 400K level. Labor said six states were “estimated” due to computer issues so we don’t really know what impact that might have had on the data. The data this week is the data that will be used to get to the employment data for the month of June. Last week’s claims were revised higher, to 420K from 414K. Continuing claims were about unchanged, from 3.698 mil to 3.697 mil. The 4 wk moving average on claims was unchanged. The slightly weaker report added to the rally moving the 10 yr note from +12/32 to +18/32 on the initial reaction. The stock market was hit yesterday, the DJIA down 80, at 8:45 this morning the index traded down 86 points and falling.
Yesterday Ben Bernanke and the FOMC meeting confirmed what most had known for two months, the US economy isn’t growing much. The Fed lowered its outlook for GDP to +2.7% this year; earlier this yr the Fed was forecasting 4.0% growth but has been lowering the forecast at each FOMC meeting since Feb. Bernanke’s press conference is shaking the economic bulls both late yesterday and this morning. For all the debate and discussions about the economy it is becoming more difficult to paint lipstick on the outlook. We have warned for months the economy won’t grow much as long as confidence levels remain low.
The FOMC policy statement, its revisions for GDP growth less than previous, and Bernanke’s press conference yesterday have cast an “official” pall on markets. Most traders had already recognized the economic slide, now with the Fed joining in the current sentiment has sunk to a new recent low. Increasing concerns of weakness in the outlook were confirmed by the Fed, the final so-called authority.
The decline in confidence in Washington is multiplying rapidly, as it does businesses are less willing to hire and consumers less willing to spend. It should be apparent now that consumers are smarter than most in Washington, getting their budgets under control. In the past consumers were responsible for 70% of GDP, over the next year or two if the economy is to gain growth it will rest on US exports. The short response to that, the US cannot grow if we have to rely on increasing exports.
At 9:00 the IEA (International Energy Agency) held an emergency press conference. The IEA is going to release 60 million barrels of oil to make a move to revive the global economies that are slipping quickly; 2 mill barrels a day for the next 30 days. America will release 30 mil of the total. In Europe sovereign debt problems continue to drag on worsening its outlook. Oil prices at 9:15 down $4.30 (see below for 10:00 level); gold is being slammed this morning on the dollar strength, down $28.00.
The dollar rose against all of its 16 major counterparts after Bernanke signaled yesterday that the central bank won’t add to stimulus measures that could erode the value of the currency. The euro weakened against the greenback before European leaders begin a two-day summit in Brussels today to discuss Greece’s financing needs as the nation struggles to stave off default. That the EU, IMF and Germany and France and Greece cannot get to finality is evidence that Europe’s debt problems spread far more than just Greece and the tenuous condition facing the EU and its currency. How the Greek situation is resolved will likely set the tone for Spain, Ireland and Portugal and possibly Italy and then the EU overall.
At 9:30 the DJIA opened down 145, S&P -17 and NASDAQ -33. The 10 yr note 2.92% -6 bp and mortgage prices +8/32 (.25 bp). Running for the door with oil prices and gold falling. Yesterday’s FOMC meeting, Bernanke’s comments and the never-ending saga in Greece are piling on this morning. The 10 yr note though so far has not cracked 2.90%. The rest of the day in US financial markets will likely see increased volatility.
At 10:00 May new home sales, expected down 4.6%, were down 2.1%. 6.2 month supply. 319K units annualized. Median sales price $222,600 down 3.4% yr/yr. No immediate reaction in the markets on the data.
Although the 10 yr still hasn’t pushed to test recent low yields, we will revert to floating overall except for closings occurring in the next 7 days. The Fed has finally agreed that the economic outlook isn’t good and with inflation under control and Europe still slipping the bond and mortgage markets should hold. How much lower interest rates can decline is still a huge question in my mind, but there is little reason now to worry that rates will increase. The 10 yr note continues in its 10 basis point yield range. We expect market volatility to remain high for the next week or so.
Monday Market Update
Treasuries and mortgage markets opened weaker this morning with the US stock indexes looking slightly better after falling 172 points on Friday. The bellwether 10 yr still hanging close to 3.00%, unable to sustain under 3.00% for any length of time. There are no economic reports today but the momentum will pick up through the rest of the week after very little last week.
On the global picture, still no consensus in Europe over how to deal with Greece’s debt problems. It seems one day they have have a plan, the next day not. Greece and other European countries are aiding the low rates in the US but mostly its the new momentary outlook that the economy is rolling over. While pessimism has increased recently it won’t take more than a couple of better than expected key data points this week to swing the wobbly sentiment to one of more optimism. In essence the markets have little conviction about the economic outlook either way. From China; its economy is weakening; lending in the country is declining. China is wanting a cooling of its over-heated economy.
Paul Muolo at National Mortgage News is reporting that risk retention for lenders looks like it is dead. What a good way to start the week; hopefully his sources are correct. FDIC chairman Sheila Bair, a big booster of RR, leaves next month and exits the debate permanently. By August or so legislation is introduced that amends the Dodd-Frank bill and gets rid of the whole concept of risk retention, qualified residential mortgage and its cousin qualified mortgage. In other words this colossal industry headache goes away and mortgage bankers are happy and hopefully consumers will be, too. IN the panic and adolescent reaction to the sub prime mortgage meltdown Congress led by two totally unknowledgeable politicians, Barney Frank and Chris Dodd, ran amok in Washington with a 2800 page bill to reform the world; we only hope more intelligent heads will begin to prevail and correct the mess those two have made.
This Week’s Economic Calendar:
Monday; no data
Tuesday;
8:30 am May retail sales (-0.7%; ex auto sales +0.2%)
May PPI (+0.1%, ex food and energy +0.2%)
10:00 am April business inventories (+1.0%)
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am May CPI (+0.1%; ex food and energy +0.1%)
June NY Empire manufacturing index (10.0 frm 11.9 in May)
9:15 am May industrial production (+0.2%)
May capacity utilization (77.0% frm 76.9% in Apr)
10:00 am NAHB June hosing market index (16, the same as it has been for months)
Thursday;
8:30 am weekly jobless claims (-6K to 421K; con’t claims 3.69 mil frm 3.676 mil)
May housing starts and permits (starts +3.2% to 540K units annualized; permits -0.5% to 548K)
Q1 current account (-$130B)
10:00 am June Philadelphia Fed business index (7.0 up frm 3.9 in May)
Friday;
9:55 am U. of Michigan consumer sentiment index (73.5 frm 74.3)
10:00 am May lading economic indicators (+0.4%, April -0.3%)
Crude oil prices down again today after last week’;s report that Saudi Arabia will go it alone and increase production after Iran blocked any increase at the OPEC meeting. Gold down a little. The DJIA opened +37, the 10 yr -8/32 at 3.00% and mortgage prices down 6/32 (.18 bp).
Not real sure about it but one source is indicating Bernanke will speak at 2:30 this afternoon on the US debt issues.
The Pavlov’s Dog trade continues; stock indexes up, bonds lower in price. We are not expecting much out of today’s trade with no data today and a lot of it hitting through the rest of the week. The equity markets are oversold technically while the bond market is equally overbought now. No clarity yet but we worry that interest rates may begin to edge up a little, particularly if this week’s various data points show some improvement compared to last months series of surprisingly weak data.
Thursday Trivia
Treasuries and mortgages doing better again this morning, the stock indexes in pre-market trade were better. Weekly jobless claims at 8:30 were a little softer than expected but generally in line; +1K to 427K, last week’s claims were revised from 422K to 426K. Continuing claims were down 71K to 3.676 mil. Treasuries were better prior to the claims and increased slightly after the release; by 9:00 however the 10 yr note backed off to unchanged and mortgage prices that were +3/32 at 8:00 were down 4/32 (.12 bp) on the session.
Also at 8:30 the April US trade deficit was expected at -$48.8B, good news, the monthly deficit was -$43.69B. Good news but does it imply the US economy is weaker than thought with less imports? More likely the decline is a result of Japan’s problems with the earthquakes and tsunami that hindered auto part exports. Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion, and crude oil imports fell by $2.42 billion as prices rose.
The ECB met and held interest rates unchanged; markets were expecting the bank to leave rates unchanged, no direct reaction of consequence.
The White House is said to be considering lowering or eliminating payroll taxes for businesses hiring new employees. It is in the planning stage, if actually proposed it will likely get bi-partisan support as Republicans have been pushing for more help for businesses.
Will there be another easing move from the Fed? As the economic outlook weakens the prospect is more in play in the minds of analysts. Not real sure what another Fed easing move will accomplish but with Congress and the Administration seeming to be paralyzed the Fed is seen as the only game in town. QE 2 didn’t help the economy as is obvious now, lower interest rates won’t help much. The problems in the economy are structural; consumers unwilling to spend much, gasoline prices and food prices continuing to increase, the housing sector being left out to dry; another easing move by the Fed won’t help cure those problems.
OPEC refused to increase output in their meeting yesterday; this morning Congress and the Administration are making comments that the US should open the strategic oil reserve to keep crude from increasing. The reserve has 727 million barrels in it; it would take a week or so once a decision to release oil to reach markets. Crude oil at 9:00 this morning up $1.00 at $101.74.
The last of this week’s auctions at 1:00 this afternoon, $13B of 30 yr bonds will be sold. Yesterday’s 10 yr auction met with good demand, today’s auction should also go well.
While the bond and mortgage markets remain strong with the prospect for lower rates still in tact; the markets presently are somewhat overbought in the near term, all momentum oscillators we use are in overbought levels.
It’s June – Where is the Warm Weather?
What the heck is going on Bay Area? It still feels like winter out there! Let’s take a look at what is in store for us this week in regards to the mortgage market.
This Week; the stock market will continue to struggle after the very weak employment report last Friday and all recent data that is confirming a slowdown in growth. The bond and mortgage markets will benefit as long as the outlook for the economy is expected to slip back. The 10 yr note is working on the psychological 3.00% level, to push yields lower it will take continuing declines in the equity markets. Another weekly lower lose in the stock market will make it six weeks in a row, not seen since back in 2002.
This week there is much in the way of economic data; Treasury will auction a total of $66b of notes and bonds beginning Tuesday through Thursday ($32B 3 yr, $21B 10 yr and $13B of 30 yr). The auctions will likely go well as most have in the last few months; however, there is always some concern that should keep interest rates frm improving much until the demand for the 10 yr note on Wednesday is measured. OPEC will meet on Wednesday with the Saudis wanting to push production higher, crude will likely trade lower in the meantime. While we continue to look for somewhat lower interest rates, this week may not provide much improvement. Technically the rate markets are overbought and likely will consolidate here for awhile. Early Monday rate markets were a little weaker with stock indexes also pointing to a lower open.
The Week to Come
Treasuries have been bid from the get go in Asia as continued problems in the euro zone peripheries have sparked a flight to safety bid. On Saturday, S&P downgraded Italy’s credit outlook to negative. Spanish citizens went to the polls over the weekend and dealt a devastating blow to Prime Minister Jose Luis Rodriguez’s Socialist party as it witnessed its worst defeat in more than 30 years amid its plan for austerity. Manufacturing readings from China and the euro zone showed manufacturing slowed from previous readings. All of these developments have been grounds for a move into the safety of US Treasuries as maturities across the complex are seeing modest gains.
The Chicago Fed national index, which draws on 85 economic indicators, was -0.45 in April versus +0.32 in March. A reading below zero indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation. The index decline follows last week’s Philadelphia Fed index which also fell substantially.
US interest rates this morning are falling, following rate declines in Germany and France. Greece’s debt, Spain’s elections and new reports from Asian countries that their economies may not be as strong as what was widely believed. The US stock market is opening very soft this morning and bonds and mortgages benefiting from continuing safe haven moves out of more risky investments to US treasuries.
Crude oil this morning down over $3.00, the dollar stronger against the euro and other currencies. The dollar index is seeing strong gains on the heels of continued problems in euro zone peripheries. The index touched a session high of 76.37, its best level since mid-March. EUR/USD dipped below 1.40 for the first time since late-March, bogged down by S&P lowering Italy’s credit outlook to negative, the Spanish election results, and slowing manufacturing numbers in the euro zone, France and Germany.
At 9:30 the bellwether 10 yr note is again at its lowest yield since last Dec; the DJIA opened -145, the 10 yr note at 3.10% -5 bp (lowest rate since last Dec); mortgage prices +8/32 (.25 bp) frm Friday’s close.
This Week’s Economic Calendar:
Tuesday;
10:00 am April new home sales (unchanged at 300K annualized units)
1:00 pm $35B 2 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Apr durable goods orders (-2.0% frm +4.1% in March; ex transportation +0.6% frm +2.3% in March)
10:00 am FHFA housing price index (N/A)
1:00 pm $35B 5 yr note auction
Thursday;
8:30 am Q1 prelim GDP (+2.0%, up frm +1.8% in the advance report last month)
weekly jobless claims (-9K to 400K; con’t claims 3.70 mil frm 3.711 mil)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am April personal income and spending (income +0.4%, spending +0.5%)
9:55 am U. of Michigan consumer sentiment index (72.4 unchanged)
10:00 am Mar pending home sales (-1.8%)
With all the bearish news over the weekend from China to Germany to France to the BRICs to Greece to Spain and here in the US with the Chicago Fed economic index reading negative; the safety moves to US bonds will keep mortgage rates lower. At 10:00 the 10 yr note is trading at its lowest yield seen in this run and the lowest since last Dec (3.10%). This week will likely be more volatile in the bond and mortgage markets with rates at these very low levels.
TGIF!!
Yesterday’s shocking surprise on the May Philly Fed business index turned what was likely to be a run to slightly higher rates around on a dime. The index was expected to increase from 18.5 in April to 20 in May’ as released the index plunged to 3.9 and the new orders component fell substantially, from 18.8 to 5.4. Until that hit at 10:00 the bond and mortgage markets were not looking good; the 10 yr note yield had spiked from 3.11% on Tuesday to 3.25% at 9:59 yesterday and mortgage prices had declined 24/32 (.75 bp) with the 30 yr rate up 10 basis points. The very closely monitored Philly Fed decline temporarily reversed heavy selling that was predicated on the FOMC minutes from the 4/27 meeting in which there was a lot of discussion about the Fed ending easing moves and how the Fed would begin to exit and the first move to tighten. The take away on Wednesday; the Fed believes the economic recovery will continue, no more QE and with interest rates so low investors and traders started toward the exit.
Already this morning we have seen a little volatility; at 8:00 the 10 yr note traded up 4/32 at 3.15%; at 9:00 the 10 yr note -4/32 at 3.19%. Mortgages followed, trading up 3/32 (.09 bp) at 8:00, -3/32 (.09 bp) at 9:00. At 9:30 the DJIA, NASDAQ and S&P all opened weaker; at 9:30 the 10 yr note unchanged and mortgage prices down 3/32 (.09 bp) frm yesterday’s close.
There are no economic releases scheduled today and nothing next Monday. With no data points to either confirm the weak Philly Fed data or refute it the bond and mortgage markets will look to the action in the equity markets for direction today. Next week Treasury will auction $99B of notes, with the markets presently uncertain today well be a quiet one.
Crude oil started a little better but has turned lower, while the key stock indexes are starting a little soft after some minor improvement yesterday. By 10:00 the DJIA was down 61, mortgage prices at 10:00 up 6/32 (.18 bp) frm 9:30 levels and the 10 yr note yield 3.15 -2 bp. As equity indexes fall the rate markets will benefit and helps erase the bearishness that had developed on Wednesday.
News out of Germany’s central bank today that the economy will likely slow suggests Germany will not likely have to increase rates again. The reaction is strengthening dollar against the euro and indirectly adds some support to the US bond market. The US economic outlook has been lowered, if Europe’s economies slow our bond and mortgage markets should hold up well. German growth is “likely to ease somewhat in the foreseeable future,” the Frankfurt-based Bundesbank said in its monthly bulletin published today. Not only Europe; Japan is now in its third recession in the last 10 yrs, this time the March 11th earthquake is causing deeper spending cuts by consumers than what had been expected. Household spending had the largest back-to-back quarterly drop since the global financial crisis in 2008, the Cabinet Office said yesterday. The figures contrast with comments by Japan’s central bank, which refrained from adding more stimulus today, that the economy’s main challenge is one of supply chain disruptions caused by the earthquake, tsunami and nuclear crisis.
Earlier this week we were expecting a small increase in rates when the bellwether 10 yr note continued to fail at its resistance level (3.14%/3.11%). Until yesterday’s Philly Fed business index collapsed rates were gathering momentum with rates increasing. The Philly Fed changed our view somewhat; with increasing evidence of economic slowing what appeared to be the beginning of a little increase in rates has been alleviated, at least momentarily. Technically the 10 yr, 30 yr futures contracts as well as the 30 yr 4.0 FNMA coupon all testing their respective 200 day moving averages, so far all of those averages have held.
Tuesday Trivia
At 8:30 April housing starts were worse than expected, down 10.6% to 523K units annualized with forecasts up 2.8%; March starts were revised higher, up 12.9%. April single family starts -5.1%. April building permits expected down 0.7% fell 4.0%. We don’t have a lot to add to the report in that it continues to slide, as long as housing does not show any recovery there is little anyone should expect in the way of economic improvement. We are amazed, and even somewhat shocked that there is very little outward attention to the crisis in Washington; possibly because there is not much that can be done except to wait it out. Interest rates are not the problem; inventory levels are and that can’t be changed quickly. Tight underwriting, low appraisals, banks unwilling or unable to make deals with investors willing to buy properties but at prices banks won’t yet accept.
More not so good news at 9:15; April industrial production was expected up 0.4%, it was unchanged; March production revised frm 0.8% to +0.7%. April manufacturing production fell 0.4%, the first decline in manufacturing since June 2010. April factory usage expected at 77.7% fell to 76.9%, March factory use originally reported at 77.4% was revised to 77.0%.
This is only Tuesday but each economic release so far has been weaker than analysts and economists were estimating. Yesterday the Fed’s NY manufacturing report a lot weaker than thought and prices pd for materials jumped. Today three data points also weaker. Commodity prices continue to fall as the economic outlook deteriorates; gold, crude oil, silver all lower this morning being pushed down as the economic outlook worsens. Yesterday the GDP outlook for this year was revised from +3.3% to +2.8%, the second revision lower and likely won’t be the last. A double dip economic recession? Not yet willing to buy that but there will be increasing talk about it along with renewed use of the word stagflation.
The DJIA at 9:30 opened down 80, the 10 yr note at 9:30 at 3.12% -3 bp and mortgage prices +.22 bp frm yesterday’s close.
In Europe the situation isn’t much better; inflation moving higher in England. Consumer prices rose 4.5% in April after a 4% increase in March, data today showed. The median forecast of 32 economists in a Bloomberg News survey was 4.1%. Core inflation quickened to the fastest in at least 14 years. In Germany investor confidence declined for a third month in May as faster inflation threatened to curb consumer spending and Europe’s sovereign-debt crisis worsened.
The weak economic data this morning has finally pushed the key 10 yr note through its resistance at 3.14% fueling the outlook for more declines in mortgage rates and US treasuries as money is moving to safety and away from risk trades. With most commodity prices falling recently inflation fears have lessened for now. Crude oil now down about $8.00 frm highs two weeks ago, gold off $90.00/oz frm its highs. The stock market is seen by Wall Street as just in a corrective pattern, we submit it is much more than just a correction—-more an adjustment that prices had exceeded future economic reality.
Can the 10 yr treasury hold below 3.14% as it is now into the close today? Likely it will be dictated by how the spastic stock market trades through the session. The key equity indexes are weaker now but recent activity has been choppy, still a multitude of bulls out there.
It’s Friday the 13th!
Prior to 8:30 the interest rate markets were unchanged, at 8:30 April consumer price index was up 0.4% in line with forecasts, excluding food and energy +0.2% also about n line. Yr/yr overall CPI +3.2% up frm +2.7% in March, excluding food and energy +1.3% up frm +1.2% in March. The yr/yr CPI the highest in 3.5 years, mostly on oil and gasoline price increases. Inflation at the wholesale and intermediate levels is climbing but so far price increases have not yet filtered down to consumers, although the core did increase from March to April.
Treasury auctions are over now until a week after next, the 10 yr auction went well while the 30 yr bond yesterday didn’t see as much demand. Treasuries and mortgages lost ground yesterday; this mooring treasuries and mortgages are better on the CPI. Yesterday’s increase in the producer price index rattled markets a little, today the CPI was tame and added some buying of treasuries and leading to increases in mortgage prices.
In Europe the economy is better than analysts were expecting; GDP in the 17 euro area rose 0.8% from the fourth quarter, powered by Germany and France. The German economy jumped 1.5% from the previous three months and French GDP grew 1.0%, exceeding economists’ median estimates of 0.9% and 0.6%, respectively. The better than expected growth has not filtered into our markets with US stock indexes opening weaker this morning.
At 9:30 the DJIA opened +13, the 10 yr note +7/32 at 3.20% -3 bp and mortgage prices +5/32 (.15 bp).
The final data point this week, at 9:55 the U. of Michigan consumer sentiment index for mid-May, expected at 69.5 frm 69.8, was higher at 72.4, the 12 month outlook 83 frm 74, current conditions 80.2 frm 82.5 Generally better than expected but no reaction to it in either equity indexes or the bond and mortgage markets.
The commodity markets continue to trade in volatile moves; today early crude oil ran back above $100.00 then backed off. Gold early unchanged. Political turmoil in the mid-East isn’t cooling with increased fighting in Libya and Yemen will likely keep oil frm sliding with the weekend ahead.
Recently Bill Gross co-CEO of PIMCO was taken to the wood shed by media and traders at competing investment funds for saying PIMCO was shorting US treasuries; anti-American. Although PIMCO probably haven;t been short bonds recently, Gross took heat to his reputation. This morning Mohammad El Arian c0 CEO at PIMCO said the firm cantinas to believe there are better opportunities outside the US in other bond markets. That PIMCO is bearish on the US bond market while most others are slightly optimistic rates will continue to fall illustrates the divide that exists in the market now.
The 10 yr treasury still has momentum, the overbought technical condition we had been watching has now been alleviated, the note is no longer overbought based on our models, nevertheless the 10 is stuck at these levels, unable to break resistance at 3.14% set early in March. Mortgage rates also in the same situation and will not move much lower n rate unless the 10 yr note cracks and holds below 3.14% (currently at 3.19%). All that said, on the other perspective traders and investors are still holding firm with little momentary interest to abandon long bond market positions. No selling, and no buying keeping interest rates stable over the past week.
Data and Auction to Influence Rates
Three data points at 8:30 this morning; weekly jobless claims were expected to have declined 50K last week, as reported claims were down 44K after increasing 43K the previous week. Continuing claims 3.756 mil frm 3.751; the 4 wk average of claims 436K from 432K the previous week. April retail sales were reported up 0.5% overall, when auto ales are taken out sales were up 0.6%; about in line with estimates. April producer price index hit a little hot, up 0.8% overall, excluding food and energy up 0.3%; both were a little higher than forecasts. Yr/yr overall PPI +6.8%, ex food and energy +2.1%.
The 8:30 data taken well by all markets initially; the bond and mortgage markets were fractionally better prior to 8:30 and showed no movement on the data but we are somewhat concerned about how the bond market will take the increases in the PPI data. The increase, although minor, won’t likely sit well for rate markets. With interest rates at these low levels any sniff that inflation may increase, whether real or imagined, will hinder bond markets.
The stock market supporting rate markets this morning with the indexes trading weaker prior to the 9:30 open. At 9:00 the DJIA -42, the 10 yr note about unchanged from yesterday’s auction when a new 10 yr note was issued. Mortgage prices at 9:00 +.03 bp. At 9:30 the DJIA opened -23, the 10 yr note rate at 3.19% up frm 3.16% on the old 10 yr yesterday but -2 bp frm the auction yesterday; mortgage prices -.06 bp.
At 10:00 March business inventories expected up 0.9%, were up 1.0%, sales up 2.2%, Feb revised from +0.2% to +0.5%. The inventory to sales ratio a record low at 1.23 months from 1.24 months in Feb. No reaction.
Crude oil and gold, along with most other commodities continue to fall as the commodity trade that pushed most every commodity higher and to excess is ending with huge declines. Crude oil on Monday climbed back up to $103.50, at 9:00 this morning trading at $97.00. Yesterday gasoline futures came under heavy selling pressure pushing prices to limit down in the futures markets.
The Senate Banking Committee is starting hearings today on the Dodd Frank bill that in our view was Congress running amok. Bernanke along with FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, CFTC Chair Gary Gensler, and Deputy Treasury Secretary Neal Wolin. There had to be some legislation to rein in the large banks that clearly demonstrated they have little self control and really demonstrated in the sub prime catastrophe that management of these huge banks didn’t have a clue about what was happening in their banks. Most of the other stuff in the Dodd Frank bill was mostly unnecessary in its detail and complexity. Bernanke is expected to support the bill, many Republicans want the bill tossed into the trash.
At 1:00 Treasury will auction $16B of 30 yr bonds, it will be a new issue of 30s. Yesterday the 10 yr auction met with good demand; today’s auction will also likely see firm demand according to traders we talk with. If however the 30 doesn’t meet expectations rates will likely come under additional pressure. The 10 yr note still cannot clear 3.14%, the yield level achieved in early March before running up to 3.60%. Technically the bond and mortgage markets are still in overbought conditions; as noted yesterday, the longer the 10 yr fails to break resistance the more likelihood rates will notch up a little. Logic being, why continue to hold the 10 yr if this is the best the market can do; there is always hot money in the bond markets (trading on short term outlooks), that money moves quickly when the markets seems to run out of momentum.