June 7th, 2011 7:33 AM by Lehel S.
Treasuries and mortgage markets opened softer this morning with Treasury beginning its $66B borrowing this week with $32B of 3 yr notes and stock indexes trading higher. At 9:00 the 10 yr note -9/32 at 3.03% +3 bp and mortgage prices -6/32 (.18 bp). Europe's equity markets doing better this morning pulling US equity markets up in early pre-open trading. Factory orders in Germany rebounded in April from a slump in the previous month, led by stronger demand for investment goods. Orders, adjusted for seasonal swings and inflation, rose 2.8% from March, when they plunged a revised 2.7%. Economists had forecast a gain of 2%. In the year, orders rose 10.5%, when adjusted for work days. Germany leads the way in Europe, the regions largest economy; exports to Asia keeping the country on a growth path.
There is no economic data this morning but at 3:00 this afternoon April consumer credit will be reported; consumer credit is one series we pay particular attention to as a direct measurement of consumer spending. Revolving consumer credit has been extremely anemic for over a year; a few months ago the Fed did a slight of hand that makes consumer revolving credit look much better than it really is, the Fed moved student loans into the revolving credit category.
New chatter out of Europe on Greece's debt problems. Jean-Claude Trichet head of the ECB said he may be in favor of Greece rolling over its debt to investors with new bonds. While Trichet said he’s against imposing losses on creditors, he indicated he’d approve of financial institutions maintaining their level of outstanding credit. “That is not a default,” he said. Under the plan being discussed by European officials, investors may be given preferred status, higher coupon payments or collateral as incentives to roll over the holdings when they mature Not n the eyes of rating agencies; a Greek debt swap offering investors terms “worse” than those of the existing securities would constitute a coercive or distressed exchange, and be considered a default, Fitch Ratings said in a statement yesterday. Another criterion for assigning a default rating is that the exchange “is, or appears to be, necessary to avoid insolvency and/or illiquidity,” Fitch said.
Later this afternoon (3:45) Bernanke will deliver a speech to the International Monetary Conference in Atlanta. Markets will be listening closely for comments about the US economic slump and what the Fed may do when QE 2 ends at the end of this month. Unlikely the Fed will launch another easing move as QE 2 did not do much to stimulate employment and economic growth.
Expect a quite trade this morning into the 3 yr note auction at 1:00, then Bernanke's speech later. Technicals still bullish but the 10 yr note will likely find it a struggle to break and hold below the psychological 3.00% level. Are investors willing to buy the note with a 2 handle?
Mortgage prices at 10:00 am are now better than at 9:30 shown below, and better than when lenders priced this morning by .09 bp.