July 28th, 2011 8:25 AM by Lehel S.
Treasuries and mortgages prior to 8:30 were up nicely, not unusual as in the last seven days every other day the bond and mortgage markets have some gains, and every other day prices fall with no real change in the level of rates. At 8:30 weekly jobless claims took some wind out of the rate markets; after 16 weeks of claims above 400K, claims this morning declined 24K to 398K. The stock indexes reversed from lower levels to up a little. Continuing claims fell 17K to 3.703 mil; last week's claims were revised up 4K to 422K from 418K. The lower claims didn't turn rate markets completely, just a slight move lower but still held better levels than yesterday's closes; within 30 minutes the bond and mortgage markets recovered all of the minor price declines.
CEOs of all major banks sent a letter to Obama, Republicans and Democrats urging they get their act together and deal with the debt problems. One more huge voice but likely won't budge anyone. According to news reports Republicans in the House will vote today on the Boehner plan to increase the debt limit; a two step plan that calls for a temporary increase then another round in early 2012. Many of the Tea Party freshmen members of the House have been resisting accepting Boehner's plan; yesterday he told them to "get their ass in line", tough talk. If the House actually passes the Boehner plan it will go to the senate where Sen.. Reid will make amendments to it, likely removing the temporary increase to increasing the ceiling through all of 2012. Then the bill will go back to the House. If Senate Republicans balk over changes to the Boehner plan it will leave Democrats and the President with the choice of accepting the plan or let the US default. All that said, it is still a fast moving target and likely will have more moves before there is a deal avoiding default.
The bond market continues to believe there will be no default, interest rate markets are holding generally unchanged for the last two weeks with yields swinging up and down every other day with no actual significant changes. One view traders hold is that even if the rating agencies were to lower US credit ratings as they have warned if the Boehner plan is passed, it won't have any impact on US interest rates. A lower credit rating will not take away the fact that the US is still the strongest and safest place in the world. That view is key to why the bond and mortgage markets are not seeing any increase in interest rates. Banks searching for hints of credit-market distress ahead of next week’s deadline to raise the debt ceiling are finding few signs of panic so far.
At 9:30 the DJIA opened +6, the S&P +1, and NASDAQ +2; the 10 yr note +9/32 at 2.95% -3 bp and mortgage prices up 10/32 (.31 bp).
At 10:00 NAR June pending home sales, expected down 2.0%, were up 2.4% after increasing 8.4% in May. Yr/yr pending sales up 19.8%. No reaction to the data, sales still very volatile but showing some small signs of improvement.
At 1:00 Treasury will auction $29B of 7 yr notes to complete this week's borrowing. Yesterday's 5 yr wasn't met with strong demand, not a bad auction just not as solid as recent 5 yr debt issues.
Treasuries still holding most of their bullish technical readings; the 10 yr trading under its key 20 and 40 day averages on the yield charts. The RSI is hovering at 50, a neutral reading. The MBS markets are a little more volatile than treasuries but will follow the 10 yr; note the MBS chart, prices are slightly declining; unable to its 20 day average. Got to go with the technicals but still wonder whether interest rates can decline much from the present levels. These are unusual times with Europe still teetering on defaults in a number of countries; we haven't heard much recently as all attention is aimed at the USdebt ceiling issue; difficult to handicap what will happen next once the debt ceiling is increased.