Yesterday the 4% coupon fell 100bp with the absence of buyers, but the opposite happened today as buyers came out in droves and pushed the coupon up 119bp to 98.94! Bargain hunting and a strong performance by the 7-yr note auction were the catalysts behind the move. Stocks had another dull session with low volumes in the absence of any economic news. The Dow rose 9.84 to 11,585.38, the S&P 500 gained a mere 1.27 to 1,259.78 while the Nasdaq finished at 2,666.93 up 4.05. Crude oil fell 37 cents to $91.12/barrel. Tomorrow’s economic data includes Initial Claims, Pending Home Sales and Chicago PMI.
Bond markets trying to recoup yesterday’s losses now at best levels of the session and well into positive territory.
After a lot of Holiday sell off, bonds make major gains today. Today at 1pm EST we have the 7-Year auction. It will be very interesting to see if the drop in price and increase in yield over the past 24 hours is enough to keep the momentum going.
Bond markets fell today but were able to close near unchanged after a slightly better than expected report on GDP and after a 5.6% rise in Existing Home Sales for November. Our benchmark 4% coupon fell 3bp to end at 99.0. Stocks posted modest gains on the data with the Dow up 26.33 to 11,559.48, the S&P 500 rose 4.24 to 1,258.84 while the Nasdaq rose 3.87 to 2,671.48. Tomorrow’s economic data includes Personal Income & Spending, Core PCE inflation gauge, Durable orders, Initial Claims, New Home Sales and Consumer Sentiment. The Treasury will announce the size offerings for next week’s 2, 5 and 7 year notes. The Bond markets will close early tomorrow at 2:00pm ET
Treasury prices rise on Monday, pushing yields lower, as worries about sovereign debt in Europe and military tensions between North Korea and South Korea make the relative investment security of U.S. debt more attractive.
Data this week :
Wednesday -3rd Quarter Gross Domestic Product (GDP), as well as Existing Home Sales
Thursday -Core Personal Consumption Expenditure Index, Durable Goods Orders, Initial Jobless Claims and Consumer Sentiment.
After record low interest rates for 7 months, mortgage rates are rising quickly. Mortgage rates rose for the fourth straight week this week, hitting 4.61 percent. Could this surge slow refinancings and further hamper the housing market? Absolutely.
Today, Freddie Mac says the average rate on a 30-year fixed loan increased sharply from last week’s rate. And it is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971. The average rate on a 15-year fixed loan rose to 3.96 percent. Rates hit 3.57 percent last month — the lowest level since 1991.
Currently, investors are selling Treasury bonds in anticipation of an extension of tax cuts and unemployment benefits that could boost the economy next year. Investors are also dumping the bonds because they believe budget deficits will grow over the long term because of the deal. The sell-off is raising the yield on Treasury bonds. Mortgage rates tend to track those yields.
The increase in rates already is discouraging homeowners interested in refinancing their homes. Refinance activity fell for the fourth straight week last week, according to the Mortgage Bankers Association.
Rates may see some short improvements, but will likely remain at present levels and continue to rise over time. And when you include the stimulative action of extending the present tax rates and the extension of unemployment benefits, it becomes really tough to see Bonds improving much further.
Mortgage Bonds opened sharply lower, but have recovered from their worst levels. Yesterday, a wild sell-off in Bonds was sparked by good economic news from China, speculation that the European Central Bank would consider more Quantitative Easing of their own to aid their troubled member countries and better than expected ADP numbers. And this sell-off was exacerbated as mortgage-backed security portfolio managers, in an effort to manage their portfolio risk, sold huge positions of MBS late in the day.
This morning, Initial Claims were reported at 436,000, above the 422,000 expected and up from the slightly higher revised 410,000. This number is a little disappointing after seeing last week’s 407,000 reading – however the 4 week moving average did decline to 431,000, the lowest 4-week moving average since August 2, 2008. This is an encouraging sign and tells us that the labor market is getting better. Bonds did improve from it’s worst levels as the markets were expecting and hoping for a better number.