July 13th, 2011 7:20 AM by Lehel S.
Thanks to Ann Magelinski for covering Monday and Tuesday; I’m back today and tomorrow while remaining on vacation, then Ann will wrap it up on Friday.
Early activity this morning had the 10 yr note down 16/32 at 8:30 to 2.93% while mortgages were holding slight gains; yesterday the 10 yr ended up 13/32 while mortgages were up 4/32 (.12 bp).
June export prices excluding ag prices were unchanged from May; import prices excluding ag prices -0.1%.
The rate markets rallying now on continuing problems in Europe with debt in Greece, Ireland, Spain, Portugal and Italy. Moody’s continues to downgrade the debt in those countries to junk status while the EU, IMF, France and Germany and current debt holders try to work out plans to avoid what increasingly looks like defaults are possible.
At 9:30 the DJIA opened +64; the 10 yr note -12/32 at 2.92% +4 bp. Mortgage prices at 9:30 +5/32 (.15 bp).
Yesterday the $32B 3 yr note auction did get decent demand unlike the 2 yr auction two weeks ago; today Treasury will auction $21B of 10 yr notes that may be a little more of a problem. Thursday $13B of 30 yr bonds will be borrowed.
Chinese GDP +9.5% actual v. 9.3% expected topped expectations. The better report is improving equity markets after strong selling in the last few days.
Yesterday’s FOMC minutes; some members mentioning the possibility of another QE programto stimulate job growth and improve the recovery. What can the Fed do? Keep buying treasuries and mortgage backs, the Fed is about out of bullets. Unlikely the Fed can do much to increase hiring by just keeping rates low, rates already not a factor at these low yields. Any real economic stimulus has to come from the fiscal side, not sure the Fed can do much more.
Fed chief Bernanke will testify at the House Committee on Financial Services at 10:00 this morning. It is the first of two required appearances at Congress, the semi-annual testimony on monetary and economic policy. He will likely add his comments to members that it is critical to get a debt ceiling deal worked out before Aug 2 when Geithner says the US will run out of money. It will happen but as is the norm, Congress and the Administration will take all the time before making a deal.
Recall a month ago, Bill Gross of PIMCO said the bond fund did not hold any US Treasuries; he is back buying Treasuries saying the fund holds about 8% of Treasuries. Is he possibly buying the bottom? We wouldn’t want to fade him but it is a major turnaround from his former position that US debt was not as good of an investment as other sovereign debt in emerging markets.
Mortgage applications decreased 5.1 percent from one week earlier, according to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending July 8, 2011. This week's results include an adjustment to account for the Fourth of July holiday. The seasonally adjusted Purchase Index decreased 2.6 percent from one week earlier. The Refinance Index decreased 6.2 percent from the previous week, and was 42.1 percent lower than a year ago. The Refinance Index has decreased the past four consecutive weeks, reaching its lowest level since April 29, 2011. The refinance share of mortgage activity decreased to 65.6 percent of total applications from 66.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.5 percent from 6.1 percent of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.55 percent from 4.69 percent, with points increasing to 0.99 from 0.90 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.68 percent from 3.79 percent, with points increasing to 1.10 from 0.88 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.