Mortgage Rates



Started a little better this morning in the bond and mortgage markets, still with very thin volume. The 10 yr note and MBSs are toying with key technical levels now, if the rally is to continue the 10 must get back below 2.00% and hold there---something that it hasn't been able to achieve for any length of time. Italy sold more debt in a successful auction today increasing European stocks and supporting the US equity markets in pre-opening trade.

Italy's borrowing costs are declining, lessening concerns of default. The country sold 9 billion euros ($11.8B) of six- month Treasury bills at half the yield it agreed to pay at an auction of the securities last month. The Rome-based Treasury sold the 179-day bills at a rate of 3.251%, down from 6.504% on Nov. 25. Demand was 1.7 times the amount on offer, compared with 1.47 times last month. It also sold 1.733 billion euros of 2013 notes today to yield 4.853%, compared with a yield of 7.814% at the last auction on Nov. 25. The bid-to-cover ratio was 2.24, compared with 1.59 last month. Tomorrow Italy will auction four different securities, including a 10-year bond; if the 10 yr rate is under 7.00% it will be considered a good auction.

The reaction to the strong Italian auctions lessens the demand for US treasuries, at least at the moment; however by 9:00 this morning after some minor selling in treasuries on the auction news, the 10 yr is back to its best levels prior to the auction results. At 9:30 the DJIA opened +7, 10 yr +5/32 at 1.98% -2 bp and mortgage prices +5/32 (.15 bp).

Retail sales in the week prior to Christmas were up 4.5% last week from a year earlier, according to data reported this morning. Sales for the week ending Dec. 24 increased 0.9% from the previous week, according to a chain-store sales index released today by New York-based International Council of Shopping Centers. Yesterday Dec consumer confidence index jumped much more than thought, expectations were at 58 frm 55.2 in Nov, as released the index was 64.5 the highest since last April. Weekly jobless claims have been declining for the last month; the Nov unemployment rate fell to 8.6% frm 9.0% expected. Nov housing starts, permits, sales of existing and new home sales were better than forecast. The Dec Philly Fed index as well as the Empire State manufacturing indexes were also better than estimates. Forecasts for growth in 2012 are at +2.4% GDP, 2011 at 2.00%.

Treasuries and mortgages are increasingly facing stronger headwinds; with the recent data and at least for the moment some relaxation of Europe fears it is looking more likely that the decline in US rates may be ending. Technicals are being tested although still holding, the likelihood of further declines in rates is becoming questionable. Likely US rates would be under some pressure this morning if it were not for the long weekend ahead.

The good news so far today; the bond and mortgage markets are trading better, ignoring the Italian auctions and the recent better economic data. There isn't any data today and volume will continue to be light. Although rate markets are doing OK so far; there isn't anything out there that is adding support this morning except what so appears to be a soft equity market. The 10 yr is testing its key averages recently, but each time so far the note manages to hold its positive bias; we don't fight the tape even though interest rates are likely to increase in the next month or two.