September 20th, 2011 7:06 AM by Lehel S.
The 10 yr note last Friday pushed slightly above its 20 day average but at the end of the managed to close below it in the yield charts. Mortgages did the same from a technical perspective. The wider perspective though is that the 10 yr and mortgages remain confined to a narrow trading range and should continue so until at least Wednesday afternoon when the FOMC will release its policy statement at the conclusion of the 2 day FOMC meeting. Based on the newest surveys 69% of those questioned expect the Fed will announce what has now been tabbed as "Operation Twist"; selling short dated notes and buying more at the middle to long end of the curve. The intended benefit as far as I can see would be to keep long term rates low. It won't increase jobs, it won't stimulate small businesses to spend, and it won't help the housing sector. Low mortgage rates have been with us for months and there has been no noticeable impact.
The 10 yr note, driver for mortgage rates, has been flirting with 2.00% for two weeks; moving below it but unable to sustain it. On the upside the 10 has support at an around 2.10%. Mortgage prices stuck in a very narrow range that will contain the market until the bond market can break out of its range. Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce "Operation Twist" this week to buy longer-term debt to spur the faltering economy.
Europe remains one of main keys to US rates. Greece is the poster boy now but there are a couple more EU countries on the debt bubble. The EU, ECB still trying to come up with a "plan". Nothing new there, they have been working on something for over a year but still haven't been able to move away from the cliff edge. European Union and International Monetary Fund inspectors hold a teleconference today with Greece’s Finance Minister, Evangelos Venizelos, to judge whether the government is eligible for an aid payment due in October. Greece has sufficient cash to keep going until mid October.
At 10:30 this morning Obama will officially announce his plans to cut the deficit by increasing taxes on wealthy Americans. Obama will seek $248B in Medicare cuts, including reductions in payments to health-care providers and $72B in savings from the Medicaid state-federal health program for the poor, but will not seek an age extension for eligibility. Obama will threaten to veto any deficit plan that reduces Medicare benefits unless wealthy Americans also are asked to pay more in taxes. He will call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a plan to cut the U.S federal deficit by $3 trillion.
This Week's Economic Calendar:
Today; the NAHB housing market index, as released at 10:00
8:30 am August housing starts and permits (starts -2.4%, permits -2.0%)
7:00 am weekly MBA mortgage applications
10:00 am August existing home sales (+0.6%)
2:15 pm FOMC policy statement
8:30 am weekly jobless claims (-10K to 418K)
10:00 am FHFA housing price index (N/A)
August leading economic indicators (+0.1%)
At 9:30 the DJIA opened -165, the 10- yr note +28/32 at 1.96% -11 bp and mortgage prices +15/32 (.47 bp) on 30s and +8/32 (.25 bp) on 15s.
The Sept NAHB housing index fell one point to 14 frm 15; no reaction as it isn't much of a surprise. The pivot between expansion and contraction is 50.
The stock market continues its volatile swings, mostly based on the on-going news out of Europe. Over the weekend there was nothing new from the region; Greece faces a test today to see whether it has met the conditions laid out for the next dose of money to avoid default. There is still a view thatGreece will default, but will not be kicked out of the EU. Unlike when the US was slammed with the 2008 financial market meltdown, Europe has 17 countries that can hardly agree on the time of the day. It goes on and on with no substantial progress.