August 11th, 2011 7:19 AM by Lehel S.
Early this morning, prior to 8:30 interest rate markets were somewhat better; at 8:30 weekly jobless claims were better than expected. Claims fell 7K to 395K to a four-month low, signaling the recent slowdown in payroll gains is due to a lack of hiring rather than more firings. Continuing claims fell to 3.688 mil frm 3.748 mil last week. Although claims were better they are still weak but after the serious beatdown of stocks recently and the big decline in rates markets it was enough to stop selling. The mortgage markets continue to be exceptionally volatile, at 9:00 mtg prices down 10/32 (.31 bp). Yesterday MBS markets were swinging back and forth in rapid fashion, one of the most volatile days in mortgage markets in over a year.
The stock market is way oversold based on technicals and psychological readings; the rate markets are equally overbought. Taking any positions in these markets has been risky, this morning the DJIA at 8:00 was down 130 points, at 9:15 +45; mortgage prices at 8:30 +5/32 (.15 bp) at 9:15 -11/32 (.34 bp).
News coming out of Europe has helped the US equity markets a little so far this morning. The NY Times is reporting regulators in Europe are considering barring any short sales in the various stock markets and shorting financial stocks. No solid info yet but when the report hit the wires it did boost stock index trading in pre-market futures. Turkey moved to curb short sales and threatened “severe penalties” for stock manipulation, joining nations from Greece to South Korea in trying to stem bearish bets after the worst tumble in global shares since 2008.
The June Treasury budget balance out at 8:30 was monthly deficit of $53.1B, markets were expecting -$48.0B. It is the highest level since October 2008 as a slump in exports exceeded a decline in shipments from overseas. Red ink continues at record levels while our leaders seem to be living in a fog and apparently do not get it yet.
At 9:30 the DJIA opened +123, the 10 yr note -7/32 at 2,20% +3 bp and mortgage markets, very volatile so far this morning down 11/32 (.34 bp). Prices of MBSs this morning are moving in 4/32 to 10/32 swings from minute to minute, difficult to say just how various lenders priced this morning.
At 1:00 this afternoon Treasury will complete the quarterly refunding with $16B of 30 yr bonds up for sale. The 10 and 3 yr auctions both were very well bid, the 30 should also see strong bidding.
Extreme volatility continuing this morning led by the stock indexes. The US bond market, based on the bellwether 10 yr note is ripe for a retracement as is the stock market. Recent activity has been based on panic and short selling by savvy traders and some hedge funds. The 10 yr hit 2.08% yesterday before closing at 2.16%; since back in the late 40s and early 50s the low yield for the 10 yr has been 2.03% hit in Dec 2008. The rate market is unlikely to push below 2.00% on the 10 yr without some consolidation at present to higher levels. Mortgage rates are also likely to settle down here for a few days. There are no bulls now in stock markets, no bears in the bond market; a perfect set up for rebounds in both markets, although the wider perspective will remain bearish on the economic outlook and bullish for rates, but lower rates from here may be a struggle for awhile. Markets have to settle down now, we expect they will. Lenders are likely to continue defensive pricing, concerns that product locked at prices a week ago may not close is a problem not having much confidence on closings as rates have crashed lower over the past two weeks.