Posts Tagged ‘Greece leaving EU’

Market recap for week ending 9/28/2012

Posted on: September 28th, 2012 by Fred Bohman No Comments

This week was another good week for mortgage interest rates. Rates today are just under 1/8 of a percent better than they were on Monday. Ever since the Federal Reserve (FED) announced the 3rd round of Quantitative easing we have seen rates improving.

Yesterday was the first day we saw rates increase in an 8 business days span, which is the longest span rates have declined since December 2008. When the FED announced that the new easing program was going to be focused on mortgage backed securities it caused a shift in investors mentality. US Treasuries were always the go to choice for investors when they were scared because it is considered the safest investment out there. Now that the FED is heavily buying mortgage backed securities investors are starting to see them as safe and they offer a much higher rate of return than Treasury bonds. It is because of this shift in investor mentality we have seen such a long and strong rally in the mortgage bond market.

Another event fueling the mortgage bond rally is that Europe’s solution to solving their debt problem seems to be falling apart. This week we saw more riots in Greece and it is looking more likely they will exit the European Union. Also Spain seems to be unwilling to accept the conditions that would come with the financial support from the European Central Bank (ECB).The reason all this affects us is that when Europe is in crisis mode investors get scarred and money flows into the mortgage bond and US Treasury markets.

As mentioned above we did see sell off yesterday in the mortgage bond market, but that is to be expected every now and then as the market never moves in a straight line. Both the technical and fundamental data looks good for rates moving into next week.

Greece staying in EU for now

Posted on: June 18th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 18th 2012.

The Greece vote yesterday to some degree confirmed Greece will stay in the Union. At least for a while. The conservative party that backs keeping Greece in the EU won by less than a majority taking 30.1% of the vote with 65% counted while the radical Syriza party that wants to bolt the Union took 26.5%. The conservative New Democracy Party has 103 seats of the 300 seat parliament while Syriza has 70 seats; now the New Democracy Party has to form a government that has the votes to work out a plan to stay in the Union. The situation in Greece is far from settled and we continue to believe before its all over (whenever that may occur) Greece will leave the Union as will some of the other troubled debt loaded countries. In the meantime that will likely last another couple of years the world will have to put up with what now appears a failed experiment joining so many sovereign countries under one umbrella. Last week Alan Greenspan joined in with his comment, “ it was a noble but failed experiment. 17 countries, 17 parliaments, 17 central banks; 17 opinions; not an easy situation to expect something of substance.

Spain’s 10 yr debt rose above 7.0% today; Spain is slipping and may lose its borrowing party while getting money frm the EU and ECB to keep its banks from failing. Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.14%. The bonds are the worst performers among 26 developed markets since June 9, when the Economic minister said he would request as much as 100 billion euros ($127B) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets. The bank aid will increase Spain’s debt to about 90% of gross domestic product, Moody’s Investors Service said on June 14, since the sovereign is responsible for repaying the loans. That threatens to further limit its ability to sell bonds, Moody’s said, as it dropped Spain’s rating three levels to Baa3, one step above junk. Italy’s 10-year yield climbed 14 basis points to 6.06%. The U.K. two-year gilt yield slid to as low as 0.173%, a record.

G-20 countries meeting in Mexico with the topic being Europe. These G meetings usually don’t amount to much; photo ops and quotes structured to make leaders look good. Nevertheless there will be comments about how G-20s are concerned and will help if certain conditions are met. After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis — and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter. Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy.

Treasuries and mortgages doing slightly better this morning as the stock indexes slightly weaker. At 9:30 the DJIA opened -47, NASDAQ -16; the 10 yr note +5/32 at 1.57% -1 bp; 30 yr mortgage prices at 9:30 +1/32 (.03 bp).

The only data today; the June NAHB housing mkt index was expected at 28 unchanged from May; the index increased 1 point to 29 after increasing 4 points in May. The index is at its best level since May 2007; in that context it clearly shows how weak the housing market is.

This week most all data is directed to the housing sector with May housing starts and permits on Tuesday and May existing home sales on Thursday. Thursday we get the weekly unemployment claims currently expected -6K at 380K. Thursday also has the key Philadelphia Fed business index, expected at -3.5 frm -5.8 in May.

It looks like a quiet day; interest rate markets about unchanged and the stock market showing little appetite for rallying so far. If he stock indexes turn positive the bond and mortgage markets will likely see some selling. With the Greek vote behind us the next key event is the FOMC policy statement on Wednesday at 12:30 then Bernanke’s press conference at 2:15. In the absence of any news out of Europe the US markets are not likely to change much until Wednesday afternoon.

Spain seeks emergency bail out

Posted on: June 11th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 11th 2012.

Very early this morning the 10 yr note price traded down 10/32 at 1.66% but by 9:00 down -3/32 at 1.64% (the 10 hit 1.72% briefly on the news announcement); mortgage prices at 9:00 generally unchanged. Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it. The most recent surveys showed the main party opposing the terms of its bailout vying for first place.

As the clock ticked on, the positive take over Spain’s cash infusion began to wear off; the stock indexes t 8:00 were +100 on the DJIA, at 9:00 +69. The bond market lost some of its price declines; while the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses. Next week is a huge weak for the US and global markets. On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say. On Monday the 18th there is a G-20 meeting scheduled I Mexico that will focus on Europe’s mess. On Tuesday and Wednesday (19th and 20th) the FOMC meets an Wednesday the policy statement and Bernanke’s press conference. There is still many that believe the Fed will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month.

The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with markets pulling back from the highs in stock markets. It is a step but a baby one at best, and indicates there are more troubles ahead. Attention now will turn to Italy, the third largest economy in the EU. The bailout helped move Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Italy’s shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate. Italy has 2 trillion euros of debt, more as a share of its economy than any advanced nation after Greece and Japan. Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep frm defaulting.

Re-capping the reaction to the Spanish bailout; initially there was euphoria, the US 10 yr note last night hit 1.72% frm 1.64% close last Friday; it lasted about a minute or so before it backed down. Europe’s stock markets are better but off their highs, the US stock indexes also off the best pre-opening levels at 9:30. The Spain deal is a slight plus but not much and now the spotlight will also turn onto Italy and of course the Greek election next Sunday.

At 9:30 the DJIA opened +75, NASDAQ +24; the 10 yr note rate at 1.65% +1 bp with 30 yr mortgage prices -4/32 (.12 bp).

Expect continued volatility today in the US markets. This week Treasury will auction 3 yr, 10 yr an 30 yr issues to borrow $66B, the same amount Treasury has gone for over the last few months. Economic data; the calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks. There isn’t any data out today.

Spain is Europe’s next big problem

Posted on: May 29th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting May 29th 2012.

This is employment week, always a big one for the markets. ADP will report its estimate for private jobs in May on Thursday then the BLS reports the “official;” report on Friday. In the meantime Europe still dominates overall, now Spain is taking the spotlight on concerns Spanish banks are teetering on the edge and need capital infusion in some manner in order to remain solvent. It only gets worse in Europe, Greece is increasingly viewed as leaving the EU with the deciding vote in about two weeks (June 17th).

How low can US interest rates fall? Based on comparisons of some other AAA sovereign yields the US 10 yr note is cheap, trading at 1.73% this morning compared to Germany’s 10 yr bund at 1.346%; the spread .385 bp at 9:30. $ yrs and counting, the US budget deficits have exceeded $1.0T with US debt downgraded by rating agencies and no longer AAA. One of the key drivers for US interest rates is there are better yields here than in Germany, Australia and other better controlled countries. The extra yield investors receive for holding Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil. In the US there is absolutely no incentive for politicians to focus on budgets; neither Democrats or republicans, no matter what comes out of their mouths, our politicians have no interest in actually dealing with excess spending regardless of what you may here from any of them.

Home values in 20 U.S. cities fell in the 12 months ended March at the slowest pace in more than a year as lower borrowing costs and an improving job market gave sales a boost. The S&P/Case-Shiller index of property values fell 2.6% from a year earlier after a 3.5% drop in February.

At 9:30 the DJIA opened +83, NASDAQ +25; 10 yr note +3/32 at 1.73% -1 bp and mortgage prices that were slightly better early were unchanged.

At 10:00 May consumer confidence index from the Conference Board, expected at 69.4, was a lot weaker at 64.9 frm rev’d Apr at 68.7 frm 69.2. Expectations at 77.6 frm 80.4, the present situation at 45.9 frm 51.2. The report on consumers is a lot weaker than what the U. of Michigan consumer sentiment index reported last week. The reaction wasn’t much, the 10 yr note moved up 2/32 in price but the stock market ignored the report.

Probably won’t see much movement in the financial markets through the rest of the day; at least until; 3:00 for the stock market. The final hour in stock trading is generally volatile. The interest rate markets are not likely to improve a whole lot this week until employment on Friday or a significant decline on German 10 yr bunds. Technically the US 10 yr is going to need a large push to move and stay below 1.70%. Mortgage rates are likely to be unchanged through most of this four day week.

Greece EU exit looks more and more likely

Posted on: May 21st, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting May 21st 2012.

The bond and mortgage markets started slightly weaker this morning but have managed to hold close to unchanged with stock indexes trading a little better. There are no economic reports today. This week Treasury will auction $99B of notes beginning tomorrow through Thursday; with rates now at historic lows the demand will be the measurement of how well the auctions go off. Economic reports this week have April existing and new home sales, durable goods orders and of course weekly jobless claims.

In Europe the EU summit starts Wednesday. German and French finance chiefs are scheduled to meet in Berlin before the summit meeting. Concern Greece will exit the euro erased about $4 trillion from global stock markets this month. There is a strong desire for keeping Greece in the 17 county currency, although Germany still holds court with its insistence for severe austerity. Greece will have another election in June, in essence to determine whether voters want to stay or go; while the election isn’t framed as a do or die thing, that is what it will be. Hedge funds reduced wagers on a rally in commodities to the lowest this year on mounting speculation that Greece will leave the euro, slowing global growth and curbing demand for everything from copper to soybeans. US stock indexes trading higher on comments from China it would support the economy and German and French officials prepared to meet before a summit. There is an increasing belief that Greece will leave the euro currency, that belief will keep US interest rates from increasing much. According to one report 90% of respondents now believe Greece will go. On Saturday at Camp David G-8 leaders urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the European Union’s bailout deal.

Speculation has risen that the Fed may need to add to the $12.8 trillion already spent to avert a second recession in three years after reports showed jobs are growing more slowly than forecast and Bernanke said April 25 that the Fed “remains prepared to do more as needed.” For first time since it announced Operation Twist in September, the Fed’s preferred gauge of measuring traders’ inflation expectations is poised to fall for a second straight month. Six weeks frm now the Fed’s Operation Twist is set to end, with inflation not a factor and the weakening global and US economy there is likely to be increasing speculation the Fed will either extend it or have another plan to keep interest rates from increasing.

At 9:30 the DJIA opened +25, NASDAQ +5; Facebook trade started lower than its IPO price last Friday -$3.00 frm the IPO price of $38.00. The 10 yr note -3/32; mtg prices traded about unchanged from Friday.

Interest rate markets continue their bullish bias, mostly on the inability of Europe’s leaders to come to any significant plan to keep Greece in the EU while softening and supporting moves to boost growth with spending increases. Two plus years and counting as the region chokes on debts it can’t pay and disagreement on how to create a miracle that will save the EU. If Greece leaves the fear of contagion to Ireland, Portugal and Spain will increase exponentially. The remainder of the day the bond and mortgage markets will take their lead from the US stock market; At 10:00 the key indexes are slightly better but appear to be struggling to hold gas.