August 22nd, 2011 10:14 PM by Lehel S.
Treasuries and mortgages opened weaker this morning with the US stock market aiming at a better open at 9:30. At 9:00 the 10 yr -14/32 at 2.12% +5 bp, mortgage prices -12/32 (.37 bp); the DJIA +152. Huge volatile swings in equities continues and will likely be the case through the week. This week there isn't much in the way of economic releases. At 9:30 the DJIA opened +140, the 10 yr note 2.12% +5 bp and mortgage prices -10/32 (.31 bp).
Treasury will sell $99B of notes, beginning with $35B of 2 yr notes Tuesday, $35B of 5 yr notes Wednesday and $29B of 7 yr notes on Thursday. Markets are focused on Friday when Ben Bernanke will open the Jackson Hole conference with a major statement on another Fed easing move, last year at the conference is when he announced QE 2. With the economy weakening and Europe's banks being hammered on the inability of Europe to come up with any plan that will keep the Fab five countries from defaulting on their debts (Greece, Spain, Italy, Portugal and Ireland).
There is some speculation swirling around this morning that Friday's preliminary report on Q2 GDP will be revised lower than the advance report last month (+1.3%). Q1 GDP was revised to +0.4% frm +1.9% that was reported originally. If there is a consensus, the revision is expected to +1.1% frm +1.3%.
Europe remains in the forefront as it has been for the last three weeks; every time there is a meeting of leaders optimism increases that a solution to its debt problems is at hand, every time there is disappointment to the extent Europe's bank stocks were pummeled last week and fed to US banks and in turn beat down US equity markets (DJIA -451, NASDAQ -166, and S&P -55). Steps taken by euro-area leaders to stem the region’s sovereign-debt challenges may not be enough to sustain the rally. German Chancellor Angela Merkel and French President Nicolas Sarkozy have stopped short of supporting euro bonds, which would allow nations to issue debt backed by all members of the region. Jean-Claude Trichet, head of the ECB, and his policy makers have bought government bonds in an effort to contain borrowing costs before a plan by European Union leaders goes into effect. EU leaders last month proposed expanding the role of the 440 billion euro ($632 billion) European Financial Stability Facility -- the fund that has helped bail out Greece, Ireland and Portugal -- to buy bonds in the secondary markets, aid troubled banks and offer lines of credit. The plan will go into effect after the parliaments of member nations approve it.
There are a number of firms out there expecting Bernanke will launch anther easing move to bolster the economy as it sinks back toward recession levels; equally there are a number of big bond houses that don't think another easing move will occur. Two sides to that coin; on one side another easing move could drive rates even lower, the other side is that an easing move will help the economy recover. One side is bullish the bond and mortgage markets the other is bearish for rates. All week the speculation will be a key to trading rates and equities.
This week's Economic Calendar:
10:00 am July new home sales (-0.7% to 310K)
1:00 pm $35B 2 yr note auction
7:00 am weekly MBA mtg applications
8:30 am July durable goods orders (+1.9%, ex transportation orders -0.4%)
10:00 am FHFA June housing price index (N/A)
1:00 pm $35B 5 yr note auction
8:30 am weekly jobless claims (-2K back to 400K)
1:00 pm $29B 7 yr note auction
8:30 am Q2 preliminary GDP (+1.1% frm +1.3%)
9:55 am U. of Michigan consumer sentiment index (55.5 frm 54.9)
10:00 am Jackson Hole Bernanke speech
The bond and mortgage markets are due for a correction, higher rates. Last week the 10 yr note fell to 1.97%, as it did selling in the bond market increased. Demand for treasuries is slowing as the rates are declining and some belief the Fed can boost the economy with another easing; if the Fed does another easing it will have to be a move that will be believed to help the economy; a difficult trick to pull of, but Bernanke has pulled rabbits on a couple of occasions during his tenure.