Treasuries opened flat this morning, mortgages however are doing better with talk that the Fed will possibly increase its purchases of MBSs. Federal Reserve Governor Daniel Tarullo said the central bank should consider resuming purchases of mortgage bonds to boost U.S. growth. At 9:00 the 10 yr -2/32 while 30 yr mtgs +6/32 (.18 bp). Stock indexes prior to the open were better indicating a strong opening at 9:30.
Trade today will focus primarily on the equity markets, the stock market is strong early but that is no indication that at the end of the day the indexes won't end up lower. Likely to be choppy as has been the case, with not much change in the bond and mortgage markets. Technically the bond and mortgage markets remain bearish but there is room to improve without changing the wider outlook. If equities reverse from morning improvement rate markets will find support. Mortgages doing much better this morning on Fed comments.
News from Europe; there won't be anything coming this weekend but by Wednesday German officials are saying a deal will be resolved by next Wednesday. Still a lot of uncertainty from the region but at the moment markets are believing an end is in sight for the near term. Yesterday Greece parliament voted for additional austerity (lower spending), the vote was close and there was rioting but at the end of the day Greece appears to have met the demands of the ECB, IMF and the EU. European stocks advanced as policy makers discussed deploying $1.3 trillion in funds to help contain the euro area’s debt crisis as they sought to break a deadlock between Germany and France.
At 9:30 the DJIA opened +140, the 10 yr note -6/32 at 2.21% +3 bp; mortgage prices doing better on Fed official comment +4/32 (.12 bp).
The comment from Fed governor Tarullo that the Fed should increase MBS purchases to aid economic recovery comes as a surprise, as do most comments that hit from various Fed officials. A positive for mortgage rates of course, and for the economy if in fact the Fed actually takes his comment and implements it. Keeping mortgage rates low is a plus, however unless there is some relaxation of underwriting and appraisals many that could re-finance are being hampered by requirements that impede many from getting a lower rate even if they are current on their present payments.
There is no data today, investors and traders setting positions for the weekend and next week's meeting in Europe. Mortgage rates doing better today on Tarullo comments but if rates increase in treasuries so too will mortgage rates increase although if the Fed were to actually increase MBS purchases the spread between mortgage rates and the 10 yr note yield will narrow from present levels. Washington regulators and the lending community don't get it, we have harped on it for years with no avail.
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