May 10th, 2011 7:27 AM by Lehel S.
Treasuries and mortgages continue to hold gains but fractionally lower early this morning; no selling just no buying ahead of today's $32B 3 yr note auction at 1:00. At 8:30 April import prices were reported up 2.2% and +11.1% yr/yr, export prices +1.1%; no noticeable reaction to the data. Earlier this morning the NFIB reported small business optimism declined again, at 91.2 in April frm 91.9 in March and the lowest reading since last October. The survey indicated small business owners concerned over inflation and the weakening economy; again no noticeable reaction.
At 9:30 the DJIA opened +23, the 10 yr note -4/32 at 3.17% +1 bp and mortgage prices -1/32 (.06 bp). Not much that can move markets today, similar to yesterday. Technically overbought bond and mortgage markets but the outlook is so bullish that traders see little reason so far to take profits. One factor we are watching, increasing margin rates for all commodities that are making it more expensive to participate in gold, silver, crude and others, pushing traders and investors out and into treasuries that are widely believed to move lower in rates. This morning the NYMEX announced crude oil margins will increase 25% at the end of the day today.
Republican congressional leaders are ruling out tax increases or a wider revenue base in talks on extending the U.S. government’s borrowing authority, creating a conflict with Democrats who would raise more money as well as cut spending. House speaker Boehner predicted that Congress would act on a broader revision of the tax code in the next two years, though he said that Republicans wouldn’t support it “as a way of increasing taxes on the American people or enterprises.” Boehner said that “without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase.” Spending cuts “should be greater” than the amount of the “increase in debt authority” given to President Barack Obama, he said.
The ECB is working on another loan plan for Greece. Another loan package will buy time for Greece and the potential for a default will be pushed back, still no assurance that Greece will make in through; there is a meeting of the ECB coming on Monday to work out the plan. The International Monetary Fund also is arranging new aid for Greece, an 80 billion-euro ($115B) to 100 billion-euro plan. Greece’s money managers are warning of damage to an already crippled economy should European leaders move to restructure the country’s debt.
At 10:00 another data point that will go with little notice; March wholesale inventories, expected up 1.0%, were up 1.1%.
At 1:00 Treasury begins its quarterly refunding with $32B of 3 yr notes, given the strength in the rate markets the auction should see good demand. Tomorrow it is $24B of 10 yr notes that could be a problem; if however the auction is well bid the 10 will likely resume its rate decline and push mortgage rates lower with it. Recent activity in the MBS markets has been a little better than treasuries with good demand for FHA paper.
Crude oil is lower today after running up almost to recent highs at $114.00+; this morning with margin rates going up at the end of the session crude is down $0.57.