Price Reversal

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A nice price reversal yesterday, after being down 107 bps at 9:30 the 3.5 July FNMA ended down just 14 bps; the 10 yr note unchanged at the end of the day at 2.54%. This morning prior to 8:30 the 10 yr yield had fallen to 2.49% (5:00 am); 8:30 brought May durable goods orders better than forecasts. Orders were expected up 3.3% as reported up 3.5%, ex transportation orders were expected down 0.1% but increased 0.7%. Treasures and MBSs lost most of the early gains. At 9:00 April Case/Shiller 20 city home price index was expected up 10.9% frm this time last year, as reported the prices increased 12.1%; month to month prices increased 1.7% with estimates at 1.5%. The April FHFA housing price index was expected at +1.2% but was up 0.7%. Two reports on home prices diverged somewhat but there was not much reaction to either data. At 9:30 the DJIA opened +71, NASDAQ +30, S&P +9. 10 yr at 9:30 2.54% unch and 3.5 30 yr Fannies +27 bps. Three important data points at 10:00. May new home sales were expected +1.3% increased 2.1% to 476K the best level since June 2008, April new home sales were revised to 466K frm 454K; the median sales price increased 10.3% yr/yr to $263,900.00. The supply of homes increased to 4.1 months frm 4.0% in April. June consumer confidence was expected at 75.0 frm 76.2 in May, the index jumped to 81.4 the best level since Jan 2008. The regional Richmond Fed manufacturing index increased to 8.0 the best since last Nov. The three reports sent interest rates higher and prices lower for mortgage-backed securities. This afternoon Treasury will kick off this week’s auctions with $35B of 2 yr notes; recent 2 yr auctions have not been as strong in bidding as the average of the last 12 2 yr auctions. Tomorrow $35 of 5 yr notes and Thursday $29B of 7 yr notes. Today’s data may confirm that the Fed’s outlook on the economy may be correct after all and it adds more to the belief that the Fed will begin to reduce its monthly buying o mortgages and treasuries by the end of the year. The 10 yr note rate prior to the 10:00 data was abut unchanged at 2.55%, at 10:10 the rate increased to 2.58%; 30 yr MBSs prior to 10:00 +20 bp, at 10:10 -10 bps. No other way to look at the bond market, it is seeing continued selling and technically quite bearish on all our models.