Market Snapshot 12/16/2011

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Yesterday the bond and mortgage markets were unchanged in very narrow ranges all day; today the markets starting the same way with little change from yesterday's closes. At 8:30 Nov CPI, the only data today, the overall and the core were expected +0.1%; as reported the overall was unchanged and the core (ex food and energy) up 0.2%. There was no reaction to the higher core in the bond market.

The stock indexes in pre-opening trade were better, at 9:00 the DJIA up 63 points. At 9:30 the DJIA  opened +55, the 10 yr note up 7/32 at 1.89% mortgage prices +1/32.

In Europe the various bourses are mixed with the FTSE up in the UK, Germany and French markets about unchanged. US equities are optimistic the European Union will meet a Dec. 19 deadline for funding a crisis-fighting package. U.S. stocks snapped a three-day decline yesterday after reports on jobless claims and manufacturing boosted confidence in the US economic improvement. According to leaders in Europe, the European Union should meet an informal Dec. 19 deadline for arranging loans to the International Monetary Fund as part of a crisis-fighting package. EU leaders decided at a Dec. 9 summit to channel an additional 200 billion euros ($261B) in loans to the IMF to help fight the euro region’s debt crisis.

Europe remains key to keeping US interest rates low; if Europe wasn't facing this crisis US interest rates given the recent improvements in most economic readings, the 10 yr and mortgages would likely be 25 to 30 basis points higher in rates. ECB President Mario Draghi announced the plan to offer lenders unlimited funds for three years after the central bank’s policy meeting on Dec. 8. The result has Spanish and Italian notes better today, leading gains in euro-area debt, on speculation banks bought the securities to use as collateral when the European Central Bank starts offering three-year loans next week.

The bellwether 10 yr yield at 1.88% is 2 bp frm its recent low yield this morning. Mortgages just sitting with no change yesterday and so far this morning. In past moves when the 10 yr traded below 2.00% it lasted just three days before it moved back over 2.00%. This time down may last longer as investors begin to wind down for the year; with Europe a constant ticking bomb investors and traders are not likely to back off treasuries much. Technically the bond market is still holding a bullish bias, mortgage markets slightly so but still in decent shape technically. With the weekend here today is likely to be quiet with narrow ranges.