June 22nd, 2011 7:18 AM by Lehel S.
Treasuries and mortgages trading better this morning, the stock indexes lower. The Greek confidence vote at 5:00 yesterday was close for Prime Minister Papandreou, he got the vote at 155 to 143 with three members abstaining. It wasn't a big victory in terms of the vote count but it did lead to what had to happen to keep Greece in line for another funding by the IMF and EU in July. The next step for Greece is to actually pass all the spending cuts that have to be accomplished in order to avoid defaulting. The euro declined against most of its major counterparts amid speculation Papandreou will struggle to pass additional austerity measures, even after winning a confidence vote last night. The IMF, contributor of a third of the bailout money for Greece and the two other euro-area countries that have received bailouts, Ireland and Portugal, has warned European Union leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.”
Yesterday stocks rallied on short covering ahead of the Greek vote, this morning the key indexes are weaker and in turn are supporting the US bond and mortgage markets. The bellwether 10 yr note remains in a tight range, unable to move lower in yield but still able to hold on any selling at 3.00%. Mortgage markets recently have been less volatile and have actually performed a little better than treasuries over the last few days. Benchmark 10-year notes are snapping a run of three straight declines, the longest losing sequence since March. Treasuries extended their advance as the Bank of England said some U.K. policy makers saw justification for further asset purchases.
Markets now totally focused on the FOMC policy statement at 12:30 this afternoon and Bernanke's press conference at 2:15. The so-called consensus is for the Fed to hold still now for a couple of months after the end of QE 2 next week. Bernanke has used the word "transitory" a number of times recently to describe the increasing costs of food and energy but no one has a definition of the word and unlikely Bernanke has no clear definition. The one thing that is clear is that the Fed has no interest in increasing interest rates for the remainder of the year and likely well into 2012.
U.S. mortgage applications declined last week, following a significant rebound the week before, as interest rates inched higher from exceedingly low levels, industry figures showed Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dropped 5.9% in the week ended June 17. Fixed 30-year mortgage rates averaged 4.57% in the week, up from 4.51% the week before. The seasonally adjusted index of refinancing applications dropped 7.2%, while the measure of loan requests for home purchases slipped 2.8%.
At 9:30 the DJIA opened -43, the 10 yr note +8/32 at 2.95% -3 bp and mortgage prices at 9:30 +6/32 (.18 bp).
The rest of the morning should be quiet ahead of the FOMC policy statement and Bernanke's press conference at 2:15. Technically the bond market still has a bullish bias but the 10 yr note has stayed within a 10 bp yield range for the past two weeks, there was a spike higher on the 14th when the stock market ran a rally but it didn't last, the following day the 10 gained back all its price decline the day before. While still bullish, to continue the bullish outlook the 10 will have to re-gain its momentum soon otherwise the market may see rates increase slightly.