Yesterday the Treasury market and banks were closed for Columbus Day while the rest of the markets were open; a huge rally in stocks marked the day, this morning in pre-market trade the key stock indexes were a little lower. Reuters posted mortgage prices yesterday afternoon down 8/32 (.25 bp) which was probably right given the stock market rally and interest rates in Germany were higher.
Yesterday's moves in stocks was driven by news over the weekend that Germany and France came to an agreement to re-capitalize banks in the region after having to take much bigger losses on Greece debt. European Union and International Monetary Fund officials indicated Greece will get an 8 billion- euro ($11 billion) loan next month under a 110 billion-euro bailout, as European leaders move to reopen talks on a new package that may mean deeper writedowns on Greek debt. The debt crisis in Europe has reached a “systemic dimension,” European Central Bank President Jean-Claude Trichet said today. He spoke to European lawmakers in Brussels as Slovakia, the only country in the region that hasn’t ratified the retooled bailout fund, prepared to vote on the package.
There are no economic reports today. Treasury will begin three days of auctions to borrow a total of $66B; at 1:00 today $32B of 3 yr notes will be auctioned. Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds. Recent auctions have met with very good demand, with the recent spike higher in rates the auctions are expected to see strong demand.
The DJIA rallied 330 points yesterday, it was all good except the volume was thin, likely due to Columbus Day holiday. This morning the indexes opened weaker, the DJIA -54. At 9:30 the 10 yr note yield at 2.14% well above its key 20 and 40 day averages; the averages haven't been penetrated since early July. Not a lot of talk about the breakdown of the technicals but in our view we deem it substantial. The bond and mortgage markets are now bearish; the 10 yr note twice in a matter of two weeks fell to the 1.70% area and each time there was no support for the 10 trading below 2.00%.
With Europe's mess seen as being close to a resolution and increased estimates being touted for GDP growth in Q3 and Q4 the rate markets will not likely improve unless or until those fundamentals change. It isn't that far a stretch to assume Europe will fumble again but at the moment the need for safety into US treasuries has lessened substantially. That said, we don't see rates increasing past 2.30% for the 10 yr note, 16 basis points higher than where it trades this morning. Under everything these days there is a lack of solid conviction on anything, with uncertainty dominate volatility is likely to remain high.
No comments:
Post a Comment