Mortgage Bonds are near unchanged after both Bond friendly and not-so Bond friendly data was released.
The inflation reading April Consumer Price Index came in a bit hotter than expected, while the NY State Manufacturing Index fell way below expectations.
Interest rate markets opened a little weaker this morning but still the 10 yr is holding well under 2.70% (2.65% at 9:00). MBS prices in early trading generally unchanged in early activity. The Russia/Ukraine situation is roiling a little but still has not set markets into any kind of major selling or buying treasuries. There is a big meeting coming later this week between all the parties and NATO members; Ukraine is calling for UN peace keeping troops but that will not happen because Russia has ultimate veto power. Russia’s holdings of U.S. government securities fell in February to $126.2B, the lowest level since 2011, from $131.8B the previous month, Treasury Department data released in Washington showed. It was the fourth straight month of declines in Russia’s holdings.
March CPI data was stronger than estimates; the overall CPI was expected up 01% with the core also up 0.1%, as reported both were up 0.2%. Yr/yr overall CPI +1.5% while the core yr/yr +1.7%. The April NY Empire State manufacturing index was thought to be up to 7.5 from 5.61 in March, as reported the index actually declined to 1.29; the new orders component fell below zero to -2.77, the employment component at 8.16 from 5.88 in March; no noticeable reaction to the two 8:30 releases.
Janet Yellen speaking in Stone Mountain Georgia (Atlanta) said our big banks may need more capital, implying that banks’ source of funding may be at risk during a financial crisis. The Basil Committee on bank regs is suggesting more capital for banks is needed. Central bankers continue to sweat more capital for banks, we wonder why after the recent increases in capital that have pushed banks to avoid proprietary trading and about every other risk that might be conceived of. Are central banks beginning to worry they have no more real effective bullets to use if the global economy slips? Yellen said staff members at the Fed “are actively considering additional measures that could address these and other residual risks in the short-term wholesale funding markets.” Yellen said she was particularly concerned that reforms to bank regulation not just bolster capital but that they also ensure liquidity because “in 2007 and 2008, short-term creditors ran from firms such as Northern Rock, Bear Stearns, and Lehman Brothers, and from money market mutual funds and asset-backed commercial paper programs.” “Together, these runs were the primary engine of a financial crisis from which the United States and the global economy have yet to fully recover,” she said. After all of the reforms and Dodd/Frank the concern is rather interesting.
The DJIA opened +42, NASDAQ +12, S&P +6; 10 yr 2.65% +1 bp and 30 yr MBS price -2 bps from yesterday’s close.
Stocks doing better this morning as earnings from Johnson & Johnson and Coca-Cola Co. offset data showing a decline in a gauge of New York-area manufacturing. Chinese money-supply data signaled growth in the world’s second-biggest economy is faltering, the housing sector in China also slowing dramatically in most of the cities in the country. Data today showed China’s broadest measure of new credit fell 19% from a year earlier and money supply grew at the slowest pace on record, highlighting risks of a deeper slowdown as the government tries to curb financial dangers. China is due to report its GDP data tomorrow; estimates are for growth at 1.5% from 1.8% in the previous quarter.
Presently the MBS and treasury markets are in what we can call limbo; not heaven and not hell. Since last February there has been little change in rates; the 10 in a 20 basis point yield range, MBSs in a 15 bp rate range. Longer term there is almost 100% belief interest rates will increase; the Fed will end its monthly purchases in Oct at the present pace, economists and analysts hold that the US economy will continue to grow, and inflation may be inching higher as the Fed wants—today’s yr/yr CPI data may be a warning sign for increase to come later this year. All of those issues are strong headwinds for lower rates. As noted, we believe the stock market will decline in the next two months in a huge shake out of the bullish sentiment; if correct we will see better rates.
I will continue to recommend a short term locking stance, which is measured in a few days to a few weeks. If anything changes, I will get back to you.
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