FNMA 4.0%
105.15 now -4 bps
09:33 -4
Open 105.19
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Another day with no
direct data to think about. In early trade this morning the stock indexes were unchanged
and treasury and MBS prices also about unchanged at 9:00. Yesterday’s volume
of trading was one of the lowest in a long time with nothing to drive trades.
At 9:30 the DJIA opened -12, NASDAQ -3, S&P -1; 10 yr 2.54% unch and 30
yr MBS price +2 bp.
It is a rush for yield
these days as investors cool a little on stocks and search for higher yields. Rushing into the riskiest corporate bonds,
frustrated by low interest rates on safer investments and convinced that even
companies with shaky finances are in little danger of default. One sign of
that rush: Investors have been buying up corporate bonds with a triple-C
rating, a grade that analysts and investors consider highly speculative. That
buying is driving up prices on those bonds and pushing down their yields,
which this month fell to 8.187% on a closely watched Bank of America Merrill
Lynch index—the lowest level on record. The idea is to buy risky bonds while
looking for safer stocks; the logic is difficult to rationalize but it is
what is happening. Shunning treasuries and MBSs for low grade corporates and
at the same time not willing to buy stocks that appear to be soft. The
thinking is that even with stocks soft corporate debt will be repaid.
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The question for the
moment is, are interest rates declining because of a softening of the
economic outlook, or because of geo-political events in Ukraine----or both? It is both, and until the Sunday election
and the resultant impact that could lead into a civil war in the country
Ukraine/Russia will keep a bid in the rate markets but not as much as was the
case three weeks ago. It is more the uncertainty about the economic growth
prospects that is keeping the equity markets frm improving and investors
beginning to back off sizeable stock portfolios. The elephant in the room is
the housing sector that has defied most analysts that were confident housing
would do what it has always done in the past, lead the recovery. We may find
more clarity Thursday and Friday when April existing and new home sales are
reported; current estimates are an increase of 2.1% for existing and +8.6%
for new home sales. At the end of the first quarter, some 18.8% of U.S.
homeowners with a mortgage—9.7 million households—were "underwater"
on their mortgage, according to a report scheduled for release Tuesday by
real-estate information site Zillow Inc. In addition to the homeowners who
are underwater, roughly 10 million households have 20% or less equity in
their homes, which makes it difficult for them to sell their homes without
dipping into their savings.
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Russian troops are
pulling back from Ukraine’s border, according to state television in Moscow, as the Russian Prime
Minister warned the U.S. and the European Union they risked provoking a new
Cold War. Ukraine, NATO and the U.S. all said they see no signs of a pullback
so far. Russian state TV reported today that soldiers in three Russian
regions bordering Ukraine have started to return to their bases after
receiving an order to return to bases. Soldiers are packing and “deciding
on routes to come back to their permanent bases,” state TV said. Ion Ukraine
“There have been no changes in their deployment,” Ukrainian Foreign Ministry
spokesman was cited as saying by Interfax. “The likelihood that Russian
authorities are misinforming the whole international community is high.” Not
likely that there is any question one way or the other abut a pullback with
satellites that can count the hairs on your head.
We are not looking for
much change in the bond market again today unless stock indexes fall as they
are now doing (10:00).
No direct news with traders looking ahead to Thursday and Friday. As the week
progresses more will be taking time off for Memorial Day, the first
‘official’ summer holiday. The technicals still hold bullish outlooks for
interest rates; to change that view the 10 would need to move up over 2.62%.
After the huge rally in the bond markets they had become overbought based on
most momentum oscillators, now though those oscillators are no longer in
overbought levels and still are bullish when viewed from a wider perspective.
With diminished participation this week and nothing to trade on until the
housing data on Thursday, we are not expecting much movement in the bond and
mortgage markets.
PRICES @ 10:00 AM
10 yr note:
+3/32 (9 bp) 2.53% -1 bp
5 yr
note:
+2/32 (6 bp) 1.53% -2 bp
2 Yr
note:
+1/32 (3 bp) 0.34% -1 bp
30 yr
bond:
+4/32 (12 bp) 3.38% -1 bp
Libor
Rates:
1 mo 0.148%; 3 mo 0.226%; 6 mo 0.322%; 1 yr 0.534%
30 yr FNMA 4.0 June: @9:30 105.20 +2 bp (-22 bp from 9:30
yesterday) (3.5 June 102.14 unch)
15 yr FNMA 3.0 June: @9:30 103.56 unch (-13 bp from 9:30 yesterday)
30 yr GNMA 4.0 June: @9:30 106.00 +2 bp (-20 bp from 9:30
yesterday)
Dollar/Yen:
101.31 -0.19 yen
Dollar/Euro:
$1.3704 -$0.0005
Gold:
$1288.40 -$5.40
Crude
Oil:
$102.32 -$0.29
DJIA:
16,439.17
-72.69
NASDAQ:
4100.44 -25.38
S&P
500:
1877.67 -7.41
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