Treasury 10-year note yields fell to almost the lowest level this month as Federal Reserve officials suggested policy makers will maintain the current pace of bond purchases to sustain momentum in the economic expansion. New York President William C. Dudley said policy makers must “forcefully” push against economic headwinds. Another regional Fed bank president, Atlanta’s Dennis Lockhart, said policy should focus on creating a more dynamic economy. “The economy still needs the support of a very accommodative monetary policy,” Dudley, is vice chairman of the Federal Open Market Committee. “Improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly canceling each other.” Dallas’s Richard Fisher said the central bank harmed its credibility with the decision last week not to taper $85 billion in monthly bond purchases. “Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.”….. “I believe that is exactly what has occurred, though I take no pleasure in saying so.” Fed officials out in force today after the unusual FOMC meeting last week that shocked markets after the Fed and Bernanke especially had led investors and traders to fully expect the tapering would begin last week. Markets still struggling with what can be expected next. While the Fed tossed a curve ball; the overall consensus within every domestic and global market expected it but chose to ignore that Bernanke and other Fed officials had consistently stated any tapering would be dependent on incoming economic data. Not only ignoring the Fed’s precursor for tapering, markets collectively also ignored recent economic reports that showed some slowing in June and July. Yes, the economy is improving albeit so slowly it makes a snail look like a winner in a 100 yd. sprint. Tapering is all the talk now and will continue through the remainder of the year. Keeping long term rates low with $85B of treasury and MBS purchases each month is helping the mortgage markets and home buying but don’t confuse it with an increase in short term rates; the only rates the Fed administers directly. The Fed and every one of its minions and officials have made it abundantly clear the FF rate is likely to remain at zero to +0.25% for at least the next 18 months or longer. By the time the Fes has to face a decision on the FF rate there will be an entirely new FOMC and Fed governors. This week there are a number of housing market reports; housing so far has been the leading economic sector but until these reports on housing actually are reflective of the recent spike in rates the sector remains questionable. We don’t necessarily share that thought however, the housing markets are holding well and should continue. That said, the sector still needs the assistance of low interest rates right now. Tomorrow at 9:00 the July Case/Shiller 20 city price increase is expected up 12.4% yr/yr. Also at 9:00 the July FHFA housing price index is expected an increase of 0.7%. Both July reports so still not completely dependent on the recent increase in rates. At 10:00 the Sept consumer confidence index frm the Conference Board is thought to be at 80.0 frm 81.5 in August. At 1:00 Treasury will auction $33B of 2 yr notes, demand will be noted but 2 yr notes generally don’t directly influence demand for longer dated maturities; Wednesday the 5 yr auction will carry a lot more interest and Thursday the 7 yr even more. The 10 still looking good but also unable to hold below 2.74% more than a few hours; the 10 today at 2.71%, a lower rate tomorrow will increase buying with the next target at 2.60% where we expect more caution. All momentum oscillators are now bullish. The 4.0 Oct FNMA coupon at 104.19 is at its 100 day average; more push on the 10 yr will take the price above it and to its next resistance at 104.85. A little mixed picture today; the 10 is nowhere near overbought conditions but the MBS market is looking a little heavy at overbought technical levels. FLOAT BUT KEEP ALERT AT PRESENT LEVELS.
Posted on: Mon, 23 Sep 2013 21:13:20 +0000
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