Treasuries and mortgages opened a little soft this morning with US stock indexes pointing to a better open at 9:30. European stocks rose to a one-week high as trading resumed after a four-day weekend while Italian and Spanish bond yields declined. Italy’s 10-year rate fell eight basis points to 4.68%, while Spain’s yield slid seven basis points to 4.99%. In Cyprus, reports indicate the country will get an extra year to reduce its banking sector, now the country will have until 2017 to balance its economy; the extension reduces some of the concerns hanging over the country and slightly removes some of the safety moves into US treasuries, although only fractionally. Breaking news in Cyprus; the finance minister has resigned, no market reaction however. Germany’s inflation rate held steady at 1.8%, the lowest in two years. Breaking news in Cyprus; the finance minister has resigned.
At 9:30 the DJIA opened +43, NASDAQ +14, S&P +4; the 10 yr note yield at 1.86% +2 bp and 30 yr MBS price down 15 bp frm yesterday’s close but still up 12 bp frm 9:30 yesterday.
Feb factory orders out at 10:00; forecasts were for orders to have increased 2.9%, as reported orders were up 3.0%. Jan orders were originally reported down 2.0%, today it was revised to down just 1.0%. The reaction added to the gains in the key stock indexes; no immediate reaction in the interest rate markets.
We reported yesterday that Fannie and Freddie are now making solid profits. That the two agencies have apparently turned the corner is befuddling the establishment in Washington. There was a stampeded to do away with the two government entities when the sub-prime debacle hit in 2008. Since then comments from politicians and FHFA have by enlarge been disparaging toward both. The Washington wisdom was to end the government’s involvement in the mortgage lending industry and turn to private markets for mortgage money ( always a non-starter in our opinion). The conventional wisdom was that the two agencies that were taken over by the government would in the end cost tax payers billions in the rescue. Now, five years after the crash, the agencies are actually making profits and causing the “experts” in Washington to scratch their collective heads----what to do? Well, what to do, is to do nothing; let them alone and recoup taxpayers money. Maybe just dump the FHFA? Sounds like a plan to me.
Another reminder; this is employment week. Tomorrow starts the debate in earnest when the ADP private jobs are reported for March. In Feb ADP reported private job growth up 198K while the BLS reported private jobs up 246K; the present consensus is ADP will report tomorrow private jobs grew 205K, the present estimate from the BLS for Friday’s March private jobs is 200K. If ADP data is stronger than thought look for the BLS outlook to be revised higher; conversely, a weaker number will cause markets to think lower on the March BLS report.
Technically the 10 yr and 30 yr MBSs remain bullish; the 10 yr rate holding below its 20 and 40 day averages while 30 yr MBS price holding above its 20 and 40 day averages. The only concern we have now is that the 10 yr note is overbought based on near term momentum oscillators, the potential for consolidation or some retracement is high. Fundamentally there is still some safety trades in treasuries over the EU debt crisis that surfaced again a couple of weeks ago in Cyprus. There have been some questions about North Korea’s rattling that it would attack the US with nukes; we very much doubt that has any influence on markets however. It isn’t unusual for the country to act up with outrageous comments. The Fed is still a large force in the bond market with its purchasing of treasuries and MBSs.