September 27th, 2011 8:59 AM by Lehel S.
Treasuries remain under pressure as equity markets around the globe rally following yesterday's CNBC report that European authorities were constructing the framework for a rescue plan. Greek leaders appealed for support at home and abroad to avert default before key legislative votes as the U.S. criticized European leaders for moving too slowly to stem the debt crisis. In recent remarks from Tim Geithner and the President the heat is building around the world for something to be done, and quickly. Geithner said Europe has “not very much time” to act. Geithner called on euro-area leaders to beef up their 440 billion-euro ($594 billion) bailout fund, warning that failure threatened “cascading default, bank runs and catastrophic risk.”
Global markets rallied overnight as optimism increased that finally---maybe--Europe's leaders have gotten the message that continued delays will send the US back into recession along with all ofEurope and drag down other regions with them. “What I learned in Washington is that Europeans finally get it,” Mohamed El-Erian of PIMCO said in an interview this morning; “they are going back and will try to do something about it. This was a very important wake-up call for Europe.” A European Commission spokesman told reporters in Brussels yesterday that euro-area ministers are unlikely to approve the payment at their Oct. 3 meeting as originally planned. Greece has said it needs the money next month.
The current increase in belief that Europe will take care that Greece will not default, and plug the dike from bursting on Portugal and Ireland has taken much of the safe haven trade into US treasuries, the 10 yr note has increased from 1.67% the intraday low Friday to 1.98% at 9:00 this morning. The US equity markets this morning are following strong equity markets overnight, at 9:00 the DJIA futures was up 196 points after closing up 272 yesterday. At 9:30 the DJIA opened +226, the 10 yr -25/32 at 1.99% +9 bp and mortgage prices -14/32 (.44 bp) frm yesterday's closes.
Adding additional pressure in the bond and mortgage markets this morning; at 9:00 the July Case/Shiller home price index for the 20 cities reported home prices increased 0.9%, the fourth month that home prices have increased. Not huge increases, but enough to suggest that property values may be closing in on a bottom. On a yr/yr basis prices still down 4.1%.
At 10:00 the Sept consumer confidence index from the Conference Board, expected at 46.6 frm 44.5 in August (the lowest reading in the last 30 months). The index at 45.4 frm 45.2 revision in August. The present situation at 32.5 frm 34.3, expectations at 54.0 frm 52.4; jobs hard to get at 50.0 frm 48.5. Still weak data; there was no immediate reaction to the report in stocks or bonds.
Auction up at 1:00 this afternoon; Treasury will auction $35B of 2 yr notes.
The strong open in stock indexes this morning may be near the highs of the day, generally an open that strong isn't sustainable, however we expect the equity market will close higher at 4:00 this afternoon. The 10 yr note high so far today was 1.99%, testing critical technical levels. We still don't expect interest rates will explode higher but if Europe actually does get something done the low in yields may have already been achieved in the short run. US economic data, recently on the back burner, will take more of center stage IF Europe can set in place a plan that relieves concerns of sovereign defaults in the area.