Bonds are improving again this morning on a report that personal income for the month of August fell 0.1%, and was revised down to 0.1% growth in July. This was the first outright decline in income since October 2009. Consumer spending, however, rose 0.2%, with the increase in spending the result of consumers dipping into savings, which is not a sustainable factor for economic growth.
Continuing with the consumer theme, the Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 59.4 this month from 55.7 in August.
On the business side of the economy, the Institute for Supply Management-Chicago reported its business barometer rose to 60.4 this month from 56.5 in August. A level of 50 is the dividing line between expansion and contraction, and we will see the national version of this data next week.
The positive news on consumer confidence and manufacturing has not been enough to offset the negative effect of the personal income report and the continuing saga coming from Europe. The yield on the 10 year note has fallen to 1.95% and mortgage prices have improved approximately .25%.
Friday, September 30, 2011
Thursday, September 29, 2011
Market commentary
While trying to decide if today’s economic data is actually good news, or just “less bad” news we can report the following: Initial jobless claims for the week ending September 24 dropped from 428,000 to 391,000, the lowest number of claims since April, 2011. And Gross Domestic Product (GDP) for the 2nd quarter was revised slightly higher this morning from an annualized rate of 1.0% to 1.3%. Not exactly a stellar performance, but a step in the right direction.
On the European front, the German Parliament voted this morning to support expansion of the euro zone rescue fund. Recall this fund was established with the authority to buy bonds from the market, enable bank recapitalizations, and provide precautionary credit lines. The measure also increases Germany’s stake in the fund from €123 billion to €211 billion. All 17 member countries must approve of the plan, and 11 have already done so. If I were a German taxpayer I would be thrilled to increase my tax burden to bailout my less frugal brethern to the south.
U.S. Treasuries were unaffected by today’s data and news, with the yield on the 10 year note remaining above 2.00% at 2.015%. Prices for mortgages are worse by a few basis points.
On the European front, the German Parliament voted this morning to support expansion of the euro zone rescue fund. Recall this fund was established with the authority to buy bonds from the market, enable bank recapitalizations, and provide precautionary credit lines. The measure also increases Germany’s stake in the fund from €123 billion to €211 billion. All 17 member countries must approve of the plan, and 11 have already done so. If I were a German taxpayer I would be thrilled to increase my tax burden to bailout my less frugal brethern to the south.
U.S. Treasuries were unaffected by today’s data and news, with the yield on the 10 year note remaining above 2.00% at 2.015%. Prices for mortgages are worse by a few basis points.
Wednesday, September 28, 2011
Market commentary
Post last week’s Fed announcement the markets experienced 3 days of emotional, perhaps even a panic reaction as investors fled risk assets such as stocks, and dove into the relative safety of U.S. Treasuries. It seems after taking the weekend off, and receiving indications the Europeans may actually have the resolve to salvage the Euro, steadier nerves have replaced the panic. Investors, seeing cheaper stock prices, have piled in and sold Treasuries, pushing interest rates higher. The yield on the 10 year note hit a low of 1.74% last week and is now trading at 2.045%, and mortgage bonds have given back over 100 basis points in price.
This trend continues today, with investors pushing interest rates higher, even though stocks remain relatively flat.
Today’s Durable Goods report from the Commerce Department suggests some businesses are investing in capital equipment, as new orders for these items rose 1.1% after falling .02% in August. This data had little effect on the markets.
This trend continues today, with investors pushing interest rates higher, even though stocks remain relatively flat.
Today’s Durable Goods report from the Commerce Department suggests some businesses are investing in capital equipment, as new orders for these items rose 1.1% after falling .02% in August. This data had little effect on the markets.
Tuesday, September 27, 2011
Market commentary
Bond prices suffered a significant setback and stocks put in a strong rally on Monday as the European Union seemed to finally be making progress in resolving its financial woes. The same story is the headline this morning; stocks are moving sharply higher and bonds struggle. The yield on the 10 year note is close to pushing above the 2.0% mark, with a current yield of 1.99%. In conjunction with the decline in Treasures, mortgage prices are worse by approximately .25%.
In terms of data, home values continue to sag as reported by the S&P/Case-Shiller index. The latest reading for this index reflects property values in the 20 cities measured declined 4.1% in the 12 months from July 2010.
Later today the U.S. Treasury will auction $35 billion of 2 year notes; the same maturity as the notes being sold by the Fed in their “operation twist” announced last week. This should be interesting to watch.
In terms of data, home values continue to sag as reported by the S&P/Case-Shiller index. The latest reading for this index reflects property values in the 20 cities measured declined 4.1% in the 12 months from July 2010.
Later today the U.S. Treasury will auction $35 billion of 2 year notes; the same maturity as the notes being sold by the Fed in their “operation twist” announced last week. This should be interesting to watch.
Monday, September 26, 2011
Market commentary
The Dow Jones Industrial Average suffered its worst performance since the throes of the financial crisis in 2008 last week, dropping 740 points or 6.4%. Sentiment soured over the week on the prospects of a weak U.S. economy and an unresolved crisis in Europe.
In today’s economic data the Commerce Department reported purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties. Sales dropped 2.3% to a 295,000 annual pace, while the median price slumped 7.7% compared to August 2010.
The economic data calendar is full this week with data on the housing sector, consumer confidence, manufacturing activity and inflation, and the U.S. Treasury is also auctioning 2 year, 5 year and 7 year notes.
After last week’s volatility this morning is a yawner as we see stock slightly higher and bonds fading. The yield on the 10 year note has risen to 1.86% and mortgages are worse by approximately .25%.
In today’s economic data the Commerce Department reported purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties. Sales dropped 2.3% to a 295,000 annual pace, while the median price slumped 7.7% compared to August 2010.
The economic data calendar is full this week with data on the housing sector, consumer confidence, manufacturing activity and inflation, and the U.S. Treasury is also auctioning 2 year, 5 year and 7 year notes.
After last week’s volatility this morning is a yawner as we see stock slightly higher and bonds fading. The yield on the 10 year note has risen to 1.86% and mortgages are worse by approximately .25%.
Thursday, September 22, 2011
Market commentary
Wednesday was all about new makers. Moody’s downgraded Bank of America, Citi, and Wells Fargo, a move that surprised the equity markets and began the negative sentiment in the stock market. The House of Representatives voted down a bill to continue funding the government past the fiscal year end of September 30, setting up another possible showdown and creating additional uncertainty in an already fragile market.
Finally, the Fed again went all-in, announcing an active “twist” policy and jumping back into the mortgage market. While some had thought that the Fed might just alter its reinvestment strategy, the Fed went further by announcing that it will sell $400 billion in Treasuries maturing in less than 3yrs and use the proceeds to purchase maturities from 6 years through 30 years. Those purchases will be allocated to 32% 6-8yr, 32% 8-10yr, 4% 10-20yr, 29% 20-30yr, and 3% TIPs. The biggest surprise of the FOMC’s announcement was that the Fed will reinvest mortgage and agency principal payments into mortgage securities. While the dollars that such a move will direct into mortgage securities will not be that significant (estimated at around $15 billion to $20 billion per month for nine months), the move does signal both support for the mortgage market as well as a desire to facilitate consumer refinancings.
The markets reacted violently on this news as stocks plummeted and U.S. Treasuries soared, a pattern that is repeating itself this morning. The yield on the 10 year note fell to 1.87% and is trading at 1.77% this morning; a record low! Mortgage bonds rallied as well, gaining over 1.0% on lower coupons, while compressing prices on higher coupons.
Finally, the Fed again went all-in, announcing an active “twist” policy and jumping back into the mortgage market. While some had thought that the Fed might just alter its reinvestment strategy, the Fed went further by announcing that it will sell $400 billion in Treasuries maturing in less than 3yrs and use the proceeds to purchase maturities from 6 years through 30 years. Those purchases will be allocated to 32% 6-8yr, 32% 8-10yr, 4% 10-20yr, 29% 20-30yr, and 3% TIPs. The biggest surprise of the FOMC’s announcement was that the Fed will reinvest mortgage and agency principal payments into mortgage securities. While the dollars that such a move will direct into mortgage securities will not be that significant (estimated at around $15 billion to $20 billion per month for nine months), the move does signal both support for the mortgage market as well as a desire to facilitate consumer refinancings.
The markets reacted violently on this news as stocks plummeted and U.S. Treasuries soared, a pattern that is repeating itself this morning. The yield on the 10 year note fell to 1.87% and is trading at 1.77% this morning; a record low! Mortgage bonds rallied as well, gaining over 1.0% on lower coupons, while compressing prices on higher coupons.
Wednesday, September 21, 2011
Market commentary
U.S. stocks and bonds are trading flat this morning as all await the results of the FOMC meeting at 2:15 p.m. ET. It does not appear that Chairman Bernanke will have a post-meeting press conference as had been originally expected. Some analysts have speculated that the Fed will announce $50 to $60 billion in monthly Treasury swaps (selling 1-to 5-year notes and buying 5- to 10-year notes) for a six-month period in what has been referred to as “operation twist.” This is generally what the market is now expecting, so anything smaller, larger or different could get a response from the markets. Stay tuned!
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