May 23rd, 2011 10:52 PM by Lehel S.
Treasuries have been bid from the get go in Asia as continued problems in the euro zone peripheries have sparked a flight to safety bid. On Saturday, S&P downgraded Italy's credit outlook to negative. Spanish citizens went to the polls over the weekend and dealt a devastating blow to Prime Minister Jose Luis Rodriguez's Socialist party as it witnessed its worst defeat in more than 30 years amid its plan for austerity. Manufacturing readings from China and the euro zone showed manufacturing slowed from previous readings. All of these developments have been grounds for a move into the safety of US Treasuries as maturities across the complex are seeing modest gains.
The Chicago Fed national index, which draws on 85 economic indicators, was -0.45 in April versus +0.32 in March. A reading below zero indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation. The index decline follows last week's Philadelphia Fed index which also fell substantially.
US interest rates this morning are falling, following rate declines in Germany and France. Greece's debt, Spain's elections and new reports from Asian countries that their economies may not be as strong as what was widely believed. The US stock market is opening very soft this morning and bonds and mortgages benefiting from continuing safe haven moves out of more risky investments to US treasuries.
Crude oil this morning down over $3.00, the dollar stronger against the euro and other currencies. The dollar index is seeing strong gains on the heels of continued problems in euro zone peripheries. The index touched a session high of 76.37, its best level since mid-March. EUR/USD dipped below 1.40 for the first time since late-March, bogged down by S&P lowering Italy's credit outlook to negative, the Spanish election results, and slowing manufacturing numbers in the euro zone, France and Germany.
At 9:30 the bellwether 10 yr note is again at its lowest yield since last Dec; the DJIA opened -145, the 10 yr note at 3.10% -5 bp (lowest rate since last Dec); mortgage prices +8/32 (.25 bp) frm Friday's close.
This Week's Economic Calendar:
10:00 am April new home sales (unchanged at 300K annualized units)
1:00 pm $35B 2 yr note auction
7:00 am weekly MBA mortgage applications
8:30 am Apr durable goods orders (-2.0% frm +4.1% in March; ex transportation +0.6% frm +2.3% in March)
10:00 am FHFA housing price index (N/A)
1:00 pm $35B 5 yr note auction
8:30 am Q1 prelim GDP (+2.0%, up frm +1.8% in the advance report last month)
weekly jobless claims (-9K to 400K; con't claims 3.70 mil frm 3.711 mil)
1:00 pm $29B 7 yr note auction
8:30 am April personal income and spending (income +0.4%, spending +0.5%)
9:55 am U. of Michigan consumer sentiment index (72.4 unchanged)
10:00 am Mar pending home sales (-1.8%)
With all the bearish news over the weekend from China to Germany to France to the BRICs to Greece to Spain and here in the US with the Chicago Fed economic index reading negative; the safety moves to US bonds will keep mortgage rates lower. At 10:00 the 10 yr note is trading at its lowest yield seen in this run and the lowest since last Dec (3.10%). This week will likely be more volatile in the bond and mortgage markets with rates at these very low levels.