July 18th, 2011 7:41 AM by Lehel S.
Treasuries started better this morning on continuing debt problems in Europe; today its Italy andGreece but also Portugal, Spain and Ireland also rattling global markets. Sovereign debt in those countries is serious and unlikely to be resolved anytime soon. Increasing concerns that in the end there will be actual defaults in Europe; here in the US the debt mess and budget impasse continues. The USisn't near the problems in Europe but the country is headed that way unless Americans get serious about deficit reductions, a very hard pill to swallow in these soft economic times. In the meantime Congress and the Administration will continue to kick the can down the road until citizens demand them to cut spending-----a decision many will have trouble with. By 9:00 the 10 yr note had lost all its early gains and mortgage prices went negative (-3/32, 0.09 bp) frm Friday' close.
President Barack Obama is pressing congressional leaders for a multitrillion-dollar agreementin deficit-cutting talks as negotiators near an Aug. 2 deadline for raising the debt limit. A default would cause more panic than the collapse of Lehman Brothers Holdings Inc. in 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast yesterday. Treasuries rose and the euro fell amid concern European leaders will fail to stop the region’s spreading debt woes at a summit this week.
Mortgage rates being pulled lower as treasuries get safety driven buying; the stock market opening lower this morning also helping. Crude oil lower today as stocks decline; Brent crude declined for a third day in London as investors bet that Europe’s worsening debt crisis may slow the economy and crimp fuel demand. Gold back over $1600.00 also driven by safety moves with investors becoming less comfortable with any currencies.
At 9:30 the DJIA opened down 65, the 10 yr note +2/32 and mortgage prices +1/32 (.03 bp).
This Week's Economic Calendar:
10:00 July NAHB housing index (as reported 15 frm 13; still very negative)
8:30 am June housing starts and permits (starts +1.75%, permits unchanged)
10:00 am June existing home sales (+2.5% at 4.93 mil units annualized)
8:30 am weekly jobless claims (+6K at 411K)
10:00 am July Philly Fed business index (0.0 frm -7/1 in June)
June leading economic indicators (+0.3%)
FHFA May housing price index (N/A)
Economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $40B in May; as reported net purchases were $23.6B. The Treasury’s reporting on long-term securities is a gauge of confidence in U.S. economic policy, and today’s report suggests the U.S. continues to offer safety from the economic crisis in Europe even with the White House and Congress at odds over raising the Treasury’s borrowing authority; although the increase was much less than was thought suggesting all is not that rosy.
US interest rates still have a bullish bias based on Europe's problems and the on-going debates in Washington over the debt ceiling and budget cuts; however, we remain somewhat defensive with interest rates as low as we have them now. We don't want to fight the tape but at the same time we have to be cautious and not get too optimistic. Go with it, but be prepared to take advantage of the low rates when markets turn. It is highly unlikely the US will lose its AAA credit rating by rating agencies, and the US will not default on our debt; nevertheless markets are dancing on a hot skillet as the deadline approaches. It is a day-to-day trade these days; unfolding and very fluid events can have a swift and big move in markets; interest rates are at all time lows now, it will take a lot of surprising bad news to drive rates lower.