Tuesday, February 10, 2015

Executive Rate Market Report

http://globalhomefinance.com

The 10 year note early this morning hit 2.00%, 7 sessions ago the yield at 1.67%. Jan employment, relaxing tensions momentarily in Greece, crude oil stopped falling, EIA saying oil prices will increase this year, and the Fed poised to begin increasing rates by mid-year. Ukraine is back in headlines but unlike a few months ago markets are not too concerned yet. Also Q4 earnings reports are doing better than some were expecting, 72% of S&P companies that have reported have beaten the forecasts and expectations.

All of the ingredients that mixed to drive interest rates to the lows a week ago have dissipated for the time being. Crude was a force that drove rates lower on increased fears of deflation crept into the economic outlook and changed some minds about when the Fed would begin its lift off from mid-year to the end of the year. Greece is still a hot spot but for the next month or so nothing is expected one way or the other whether the country will be leave the EU. If Greece were to walk the fear that Italy, Spain, Portugal might join the exit and end the EU as we know it.

The IEA cut its forecast for oil-supply growth from nations outside the Organization of Petroleum Exporting Countries for a second consecutive month Tuesday, citing cuts in company spending. Production will increase by 800,000 barrels a day this year, the slowest rate expansion since 2012 and down from an estimate of 1.3 million a day in December. Meanwhile Ian Taylor, chief executive officer of Vitol Group, the largest independent oil trader saying oil is likely to make another pass lower in price by mid-year. Uncertainty!

Greece officials will meet creditors tomorrow. The Greek finance minister saying the government intends to neither tear up the existing bailout agreement, nor allow the budget to be derailed. He said Greece will implement about 70% of reforms already included in the current bailout accord. German Chancellor Angela Merkel remained unyielding over terms of the country’s bailout conditions. More Uncertainty!

The recent fundamentals that drove US rates down are momentarily mute, however we believe it is momentary and another run lower in rates will occur. From what level is the concern; all of our work is now bearish and we never go against market action. If we get lower rates at some future point it is not reasonable to attempt to say when and from what levels any rally may occur. We have been suggesting locking now for over a week, if you did so you were able to capture very good mortgage rates for your clients.

At 9:30 the DJIA opened +86, NASDAQ +24, S&P +10; 10 yr note yield 1.99% +3 bps. 30 yr MBS price at 9:30 +2 bps from yesterday’s close and -32 bps from 9:30 yesterday.

Treasury will auction $24B of 3 yr notes this afternoon. Tomorrow more important $24B of 10s will go up for sale.

Dec JOLTs job openings; 4.975 mil expected, as reported 5.028 mil jobs available, up from 4.972 mil in Nov. Dec wholesale inventories at 10:00 up 0.1% as we expected, final sales however were down 0.4%, we were looking for a little weaker in sales than reported. No reaction to either report.

Tomorrow two events that may shape the bond market in the coming weeks. The finance ministers of the euro area meet to see if a new deal can be done for Greece. Greece is pushing for a 10 billion euro bridging loan to allow it avoid a funding crunch, while also giving the new Greek government time to come up with a new plan for the sustainability of Greek finances. Germany opposing it. Also tomorrow the leaders of Germany, France, Ukraine and Russia are due to meet to try to hammer out a peace agreement, if no agreement is reached Obama is thinking of supplying Ukraine with ‘lethal weapons’.

Rate markets bearish now; uncertainty however is the theme for both US equity and interest rate markets. Stock market analysts remain quite bullish for US equity prices through the rest of the year, we not so sure that will be the case, but we are a voice in the wilderness currently.

WE DON’T LIKE FLOATING NOW; IF YOU DO, STAY CLOSE; WE WILL LET YOU KNOW IF SELLING CAUSES RE-PRICING LOWER.

PRICES @ 10:20 AM

10 yr note: -3/32 (9 bp) 1.99% +3 bp

5 yr note: -2/32 (6 bp) 1.52% +3 bp

2 Yr note: unch 0.65% unch

30 yr bond: -6/32 (18 bp) 2.56%

Libor Rates: 1 mo 0.171%; 3 mo 0.255%; 6 mo 0.362%; 1 yr 0.631%

30 yr FNMA 3.0 Feb: @9:30 102.05 +2 bp (-32 bp frm 9:30 yesterday)

15 yr FNMA 3.0 Feb: @9:30 104.87 +1 bp (+7 bp frm 9:30 yesterday)

30 yr GNMA 3.0 Feb: @9:30 102.72 unch (-28 bp frm 9:30 yesterday)

Dollar/Yen: 119.58 +0.94 yen

Dollar/Euro: $1.1314 -$0.0011

Gold: $1235.40 -$6.10

Crude Oil: $52.47 -$0.39

DJIA: 17,801.46 +72.25

NASDAQ: 4749.96 +23.94
S&P 500: 2055.52 +8.78


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