Light Blue 25, Dark Blue 50, Pink 100 day averages The bond and mortgage markets opened slightly better this morning but not much difference frm yesterday’s selling that dropped MBS prices 20 bps and GNMA price down 27 bps. Equity markets still driving rates, yesterday the three key indexes had another strong day with earnings continuing to impress investors and a very strong consumer confidence index, the best since Oct 2007. Today at 2:00 the FOMC policy statement; between now and then the media and analysts will spend all day making projections about what the FOMC will do. Our view; the Fed will end the QE at the end of the month, and the Fed will state it will keep interest rates low for a considerable period. Fedspeak interpreters will focus on each verb and adjective in the statements---what does each word mean and what is the message the Fed is projecting. We go through this process every six weeks. It usually takes a day or so for everyone to get on the same page about what the statement really means going forward. At the beginning of the year the overwhelming consensus was the Fed would begin increasing the FF rate no later than next April; since then the consensus has been extended more than a few times. The current forecasts complied by Bloomberg is that there is only a 50% chance the Fed will increase the FF rate to 0.5% by next October. Janet Yellen hasn’t retracted any of her comments that she is concerned about the quality of new jobs being created; as long as that is her concern she isn’t likely to move anytime soon to begin increasing short term interest rates. This afternoon will be all about how the FOMC frames the statement; the way markets interpret the phrasing. The Fed has made a huge point in the last few years to be more transparent without being specific, letting markets define the meanings. Prior to the FOMC this afternoon, Treasury will auction $35B of 5 yr notes at 1:00. Yesterday’s $29B 2 yr auction was in line with previous 2 yr auctions. Conducting an auction one hour before the FOMC is kind of dicey. At 9:30 the DJIA opened +28, NASDAQ -14, S&P unchanged, the 10 at 2.30% testing its 20 day moving average. MBS prices at 9:30 +2 bps frm yesterday’s decline of 20 bps points and down 15 bps frm 9:30 yesterday. The weekly MBA mortgage applications declined last week. The composite index -6.6%, the purchase ndex -5.0% while the re-finance index dropped 7.0%. The week before was strong, +11.6% composite while the refinance index was up 23.0%. Purchases the prior week were down 5.5%. Based on this, purchases are still slow. Expect the bond and mortgage markets to stay still until this afternoon’s FOMC statement at 2:00 pm. The bellwether 10 yr note yield at 2.30% is the yield the 10 printed the day before the huge decline in rates; two weeks and back to where rates were before the capitulation of most bond market bears. Not really necessary to point out the volatility. Technicals now are neutral, not bullish or bearish, however that won’t last long. The fixed income markets are at a crucial pivot point now. WE WILL BEGIN FLOATING THIS MORNING. BE FOCUSED AT 2:00 THIS AFTERNOON. WE WILL ISSUE A FLASH REPORT IF THE FOMC STATEMENT BREAKS THE BOND AND MORTGAGE MARKETS. PRICES @ 10:00 AM 10 yr note: -4/32 (12 bp) 2.31% +2 bp 5 yr note: -2/32 (6 bp) 1.53% +2 bp 2 Yr note: 0.44% +2 bp frm yesterday’s auction 30 yr bond: -11/32 (34 bp) 3.08% +2 bp Libor Rates: 1 mo 0.152%; 3 mo 0.232%; 6 mo 0.322%; 1 yr 0.541% 30 yr FNMA 3.5 Nov: @9:30 103.42 +2 bp (-15 bp frm 9:30 yesterday) 15 yr FNMA 3.0 Nov: @9:30 103.85 -4 bp (-10 bp frm 9:30 yesterday) 30 yr GNMA 3.5 Nov: @9:30 104.42 +3 bp (-21 bp frm 9:30 yesterday) Dollar/Yen: 108.15 -0.01 yen Dollar/Euro: $1.2741 +$0.0007 Gold: $1,222.20 -$7.20 Crude Oil: $82.24 +$0.82 DJIA: 17,058.66 +52.91 NASDAQ: 4561.17 -3.12 S&P 500: 1990.43 +5.38
Posted on: Wed, 29 Oct 2014 16:49:29 +0000
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