Mortgage Rates



Treasuries and mortgage markets opened about unchanged this morning. At 8:30 two data reports; March retail sales, expected up 0.3%, was up 0.8% and ex auto sales +0.8% (ex-autos expected up 0.6%). April Empire State manufacturing index was expected at 17.5 frm 20.2 in March; as reported the overall index plunged to 6.56; new orders component at 6.48 frm 6.84 and the employment component at 19.28 frm 13.58---- over zero is considered expansion, more indication that there is a slowing in the manufacturing sector. The retail sales report is trumping the Empire State data this morning; stock index are better and at 9:00 the 10 yr note, after being up slightly (+3/32) was -1/32 at 2.00%, mortgage prices at 9:00 -2/32 after opening +3/32 prior to the 8:30 data.

Asian stocks fell overnight, with the regional benchmark index headed for its biggest drop in almost two weeks after the cost of insuring against a Spanish default climbed and U.S. consumer confidence dropped last Friday, clouding the earnings outlook for Asia’s exporters. Stocks also fell after five-year credit-default swaps on Spain surged to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.

European stocks rebounded from four consecutive weeks of losses and U.S. index futures advanced after American retail sales increased more than forecast in March. Spanish bond yields climbed before a debt sale while the euro weakened. Credit-default swaps on Spain jumped 17 basis points to 519. Contracts on Italy rose seven basis points to 441, the highest level in almost three months. Spanish 10-year bond yields jumped as much as 18 basis points, to 6.16%, the highest level since Dec. 1. Five-year credit-default swaps linked to Spanish bonds jumped to an all-time high. Spain will sell 12- and 18-month bills tomorrow, followed by auctions of debt due in October 2014 and January 2022 on April 19.

At 9:30 the DJIA opened +85, the 10 yr note traded unchanged At 1.99% and 3-0 yr MBS prices unchanged.

Although Europe’s debt issues remain, this morning there is a little relaxation about the possibility of default as EU ministers are calling for the ECB to step up and buy Spain’s bonds to keep their interest rates from increasing more. So far nothing from the ECB but words implying it is “prepared” to act if necessary. The US bond market remains the safe port for investors and has been one of the reasons we have seen US rates fall over the last two weeks. US stock market is rallying this morning on the March retail sales increase, US interest rates are not seeing any selling on the better stock indexes; as long as the debt problems in Europe continue it should keep a bid in US treasuries, thus supporting the mortgage markets.

At 10:00 Feb business inventories were expected up 0.5%, as reported inventories increased 0.6%, sales were up 0.7% with an inventory to sale ratio unchanged from Jan at 1.28months. Also at 10:00 the April NAHB housing index, expected at 29 frm 28 in March, fell to 28, the first decline in 7 months; single family index at 26 down from 29. The drop in the NAHB index sparked some increases in bond and mortgage prices. The DJIA off its high, the NASDAQ has been weaker all session so far.

Technically the treasury and mortgage markets remain bullish; the 10 yr so far today is holding a gain as are mortgage prices, but at 9:30 both were flat on the day and now boosted by the NAHB housing mkt index and stock indexes off their best levels. Looks like the 10 yr is headed to 1.90% (at 10:10 1.96% -3 bp today).