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
Crude oil trading range for the day is 2920-3238 for Stock tips.
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