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After a big drop in US long term treasuries over the last few days, this morning the 10 yr is backing away with US stock indexes aiming for a better open at 9:30. At 9:00 the 10 yr -16/32 at 1.86% +5 bp and MBSs -7/32 (.22 bp) frm yesterday's closes. Europe's stock markets traded better this morning; the US indexes were better prior to 8:30 then got an additional boost when Nov housing starts and permits were reported. Both starts and permits were expected to be weaker (-0.8% or starts and -2.8% on permits) as reported starts increased 9.3% and permits up 5.7%. Starts the highest in a year, multifamily starts at a three year high. New construction of single-family houses rose 2.3% from the prior month to a 447,000 annual rate, the most since June. Work on multifamily homes surged 25% to an annual rate of 238,000, the highest level since September 2008.
Europe's equity markets better on data from Germany and the UK were better than expectations. German business confidence climbed in December, suggesting Europe’s largest economy is weathering the euro area’s debt crisis. The gauge of business confidence, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based Ifo institute said today. Consumer confidence in the UK rose in November from a record low as consumer expectations for the economy improved in the run-up to Christmas. Momentary reports that are not likely to be sustainable but today they are pushing equity markets higher in the region.
Fitch lowered France’s credit outlook and put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Italy’s benchmark 10-year bond yield returned yesterday above 7%, the level that led Greece, Portugal and Ireland to seek bailouts, before falling below the threshold.
At 1:00 this afternoon Treasury will auction $35B of 5 yr notes; yesterday's 2 yr auction wasn't as well bid as we and many expected. Over the last couple of months Treasury auctions had been strong, yesterday's 2 wasn't that weak, but in comparison to recent borrowings it was a little disappointing. The 5 today should see better bidding, if not look for yields to edge a little higher with $29B of 7 yr notes tomorrow.
Stock indexes exploded on the open, up 160 on the DJIA then continued higher; after 10 minutes the DJIA +218. Interest rates up this morning on the equity market; the 10 yr at 1.87% +6 bp. Mortgage prices at 9:30 were -5/32 (.15 bp).
Long term rates are at levels that may be hard to continue lower; the 10 closed at 1.81% yesterday, 11 bps frm the all-time low at 1.70% hit in late Sept. If Europe wasn't in the headlines everyday with its inability to remove fears that the EU will break apart, that Spain, Italy and the regions banks won't implode in defaults and insolvency; US interest rates would likely be 50 to 60 basis points higher. In the US the economy is improving, about every data point over the last month has been better than thought. The only reason US rates are at these low levels is because money from around the world is moving to the safest place---the US treasury market
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