June 28th, 2011 7:23 AM by Lehel S.
Treasuries and mortgages opened weaker this morning after a little pull-back yesterday after the weak $35B 2 yr note auction. With one exception (last Friday) the bellwether 10 yr note has traded within a 10 bp range (3.00% to 2.90%) for the last 10 days. Yesterday's weak bid on the 2 yr note may imply that investors are becoming less interested in USA debt at the present low rates; this afternoon Treasury will auction $35B of 5 yr notes, a little better test of that theory.
Greece still dominates the news today; a two day strike in the country met with tear gas and rubber bullets today while the parliament is debating serious cuts in spending, much of it is on cutting social programs. The much anticipated vote on the necessary cuts to get help from the IMF and EU will take place tomorrow morning, the number of yes votes has to be more than 150 to get it done. Although there are strikes and riots markets are expecting the vote on cuts will pass. France led the way yesterday for its banks to re-cast loans to Greece, extending payouts as far out as 30 yrs on debt maturities less than 5 yrs. Germany is expected to force the same for its banks.
The Case/Shiller April 20 city home price index was down 0.1% frm March and yr/yr down 4.0%, both generally in line with expectations. Nothing new there, housing will continue to drag down the economic recovery.
The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent. Inflation in the 17-nation euro region has been in breach of the ECB’s 2 percent limit since December. According to comments frm Jean Claude Trichet this morning the ECB is likely increase rates again next week at its meeting.
The DJIA opened +30, the 10 yr at 9:30 -5/32 at 2.95% +2 bp and mortgage prices -3/32 (.09 bp).
The June consumer confidence from the Conference Board, expected at 10:00 was somehow released at 9:40. It was expected about unchanged from May at 60.7, as released down to 58.5. The present conditions index fell to 37.6 frm 39.3, the expectations index fell to 72.4 frm 76.6. No reaction to the softer data, the stock indexes continued to gain and treasuries and mortgages lost a fell clicks immediately after the early release.
Next up for the bond market, the $35B 5 yr note auction. Traders will be keen to see what kind of demand will emerge after the surprisingly weak demand for yesterday's 2 yr note auction.
Although markets are expecting Greece will pass the austerity cuts demanded by the IMF and EU, there is still a little uncertainty. We don't expect much in the markets this morning, and not much this afternoon unless the 5 yr flops. Today it is mostly waiting on Greece in the bond market. There is uncertainty on how markets will react if the vote is positive; will investors take off the safety trade, one factor keeping US rates low?