Treasuries and mortgages had a decent day last Friday; this morning the 10 yr note a little soft, down 3/32 at 9:00 and mortgage prices off 5/32 (.15 bp). No data today and not much this week. Treasury will sell $72B in note and bonds in its quarterly refunding on Tuesday through Thursday. The mess in Europe continues to be the dominant influence on US markets; over the weekend Greece politicians agreed to form a new government with Papandreou stepping down. A new government likely won't change much though; Greeks will still be required to accept vey serious cuts in spending that will impact more jobs and higher taxes in order to get more money frm the EU, IMF, EFSF, and ECB. Next up in the euro contagion, Italy; Berlusconi’s majority is unraveling before a key parliamentary vote tomorrow on the 2010 budget report after contagion from Europe’s sovereign debt crisis pushed the country’s borrowing costs to euro-era records. Debt problems in Europe will not go away for a very long time, if ever----without defaults.
After most focus on Greece in the last month, attention will now turn to Italy also. Italy, as we have previously noted, makes Greece's debt problems look like pocket change compared to what Italy faces. Its bond market is the third largest next to the US and Japan, the debt is about three times what Greece faces. The government is teetering with its prime minister losing support rapidly; two Berlusconi allies defected to the opposition last week, and a third quit last night. Six others called for Berlusconi to resign and seek a more broadly-backed government. Italy led an increase in the cost of insuring European sovereign debt on concern Prime Minister Berlusconi's government is collapsing as he faces a parliamentary budget vote tomorrow. Credit-default swaps on Italy climbed 13 basis points to 506 in London, approaching the record 534 set Sept. 22.
About the only economic release this week that will get attention is Thursday's weekly jobless claims currently expected to be up 3K to 400K; claims in the past six weeks have been hovering at 400K to 412K. Monday afternoon Sept consumer credit, a report we monitor closely, but doesn't get a lot of direct attention from traders; in August credit declined $9.5B, Sept is expected up $5.0B.
The 10 yr note and MBSs are both at pivotal levels; both testing their respective 20 and 40 day averages and both RSIs are at neutral levels. The 10 yr continues to struggle at 2.00% unable to move below it but equally unable to increase. Safety movement into US treasuries is keeping US rates from increasing while there is increasing conviction that the economy is improving.
This Week's Economic Calendar:
Monday;
3:00 pm Sept consumer credit (+$5.0B after declining $9.5B in August)
Tuesday;
1:00 PM 3 yr note auction ($32B)
Wednesday;
7:00 am weekly mortgage applications
10:00 am Sept wholesale inventories (+0.6%)
1:00 pm 10 yr note auction ($24B)
Thursday;
8:30 am weekly jobless claims (+3K to 400K; con't claims 3.69 mil frm 3.683 mil)
Oct import and export prices (N/A)
Sept trade balance (-$45.8B)
1:00 pm 30 yr bond auction ($16B)
2:00 pm Oct Treasury budget (-$105B)
Friday;
9:55 am Nov U. of Michigan consumer sentiment index (61.5 frm 60.9)
The DJIA opened -18 at 9:30; the 10 yr note -1/32 2.04% unch and mortgages a little weaker -5/32 (.15 bp).
The bellwether 10 yr note still is finding technical resistance whenever it approaches 2.00%; safety moves to US from Europe on fears of banks in Europe increasing. MBSs follow the 10 they too are working around technical levels, last week both markets rallied on Greece, this morning holding as the stock market is improving from the 9:30 open. Equity markets continue to set the direction for rate markets, last week the DJIA fell 248 points leading to the improvement in rate markets.
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