Overnight Changes?

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Overnight the US bond market traded a little better but by 9:00 this morning the price gains were over and the 10 yr quietly down 2/32 at 2.49% +1 bp; 30 yr MBSs -3 bps. No US news early on as markets continue to prepare for Friday’s employment report that is being seen as not  quite as strong as in May. We don’t take that seriously though as the data usually surprises and the forecasts are relatively useless. If the June employment is actually weaker than what was expected it will support the bond market as markets will fall back to looking for the Fed to continue its QEs. Still very much a moving target. US stock indexes slightly weaker in pre-market trading this morning; in Europe a report showed producer prices in the 17-nation bloc unexpectedly fell in the 12 months through May, buoying speculation the European Central Bank will keep monetary policy accommodative when it meets on Thursday.   Later today two Fed officials will be talking; at 12:30 NY Fed Pres. Bill Dudley and later (5:45 pm)  Fed Governor Jerome Powell. The last time Dudley spoke out he tried to ease markets’ concerns that were riled when Bernanke said the Fed was ready to begin reducing its monthly purchases of treasuries and mortgages. He is going to speak on economic conditions. Markets likely will sit quietly this morning until Dudley’s comments hit.   At 9:30 the DJIA opened -22, NASDAQ -2, S&P -1; 10 yr note -1/32 2.49% unch. 30 yr MBS price unchanged from yesterday’s close.   At 10:00 May factory orders, the only data today, were expected to be up 2.0% frm April; orders increased 2.1%, April orders originally reported up 1.0% were revised to +1.3%. No noticeable reaction to the report. After opening slightly lower at 9:30, at 10:00 the key indexes were improving. Mortgage prices also gaining momentum since 9:30, at 10:00 up 9 bp frm 9:30.   June auto and truck sales will be released through the day; Chrysler already out with an increase of 8.2% about where analysts were forecasting. Estimates are for sales to have increased 15.6% the best pace since Dec 2007. Ford +13.4% hit at 9:30. Looks like truck sales frm both Chrysler and Ford were extremely strong.   With the June employment report out on Friday we expect markets will remain within narrow ranges unless Fed officials shake things up. The bond and mortgage markets will close early tomorrow ahead of the 4th on Thursday. Tomorrow the ADP private jobs report may roil the markets pending on what is reported, the present estimates are for an increase of 165K. The shortened day tomorrow will be the set up for traders into the Friday employment report from the BLS; current estimates call for an increase of 161K non-farm jobs and +175K for private jobs, the unemployment rate at 7.5% down frm 7.6%.   Here are the ‘what ifs’; if the employment report is stronger than estimates the 10 yr note yield and mortgage rates will likely move back to the recent high rates. If the employment report is weaker than expected look for the bond and mortgage markets to improve taking the 10 yr down to about 2.35% (-13 bps frm present levels) and mortgage rates down about 8 bps frm present rates.   The technicals in the bond and mortgage markets are still bearish; we expect that to remain the case unless the June employment data is weak. Only the Shadow knows; employment reports are difficult to forecast and usually set up volatility when reported as the majority of time the data is well off estimates.     PRICES @ 10:00 AM 10 yr note:                    +2/32 (6 bp) 2.47% -1 bp 5 yr note:                      -1/32 (3 bp) 1.39% +1 bp 2 Yr note:                      +1/32 (3 bp) 0.35% -1 bp 30 yr bond:                    +8/32 (25 bp) 3.47% -1 bp Libor Rates:                  1 mo 0.195%; 3mo 0.273%; 6 mo 0.414%; 1 yr 0.690% 30 yr FNMA 3.5 July:    @9:30 101.60 +1 bp (+17 bp frm 9:30 yesterday) 15 yr FNMA 3.0 July:    @9:30 102.97 -1 bp (+24 bp frm 9:30 yesterday) 30 yr GNMA 3.5 July:    @9:30 102.77 -6 bp (+27 bp frm 9:30 yesterday) Dollar/Yen:                    100.31 +0.65 yen Dollar/Euro:                  $1.3007 -$0.0057 Gold:                             $1253.40 -$2.30 Crude Oil:                     $98.71 +$0.72 DJIA:                            15,024.20 +49.24 NASDAQ:                     3443.69 +9.20 S&P 500:                       1620.45 +5.49