Mortgage Rates



Stocks strong this morning with the bond and mortgage markets trading lower in price and higher in yield. French President Francois Hollande led a revolt against Germany’s austerity-first doctrine for combating the financial crisis, winning easier aid terms for Spain and Italy in an effort to reshape the balance of power in Europe. At the 19th European summit since the crisis broke out, Hollande pushed through the concessions by threatening to delay endorsement of a deficit-reduction treaty that German Chancellor Angela Merkel touted as one of her signature achievements. Euro leaders agreed to let the permanent bailout fund pour money into Spanish banks directly, instead of channeling it via the Spanish government. Direct recapitalizations will be possible once Europe sets up a single banking supervisor, possibly as early as 2013. Spanish and Italian bonds surged after euro-area leaders expanded steps to stem the debt crisis by easing repayment rules for emergency loans to Spain’s banks and relaxing conditions on potential help for Italy. Given past non-performances when EU summits were held, this one is being considered some kind of success.

May personal income increased 0.2% while spending was unchanged, income was on target but spending was weaker than +0.1% expected.

At 9:30 the DJIA opened +120, NASDAQ +58; the 10 yr note at 9:30 -22/32 1.66% +8 bp, 30 yr MBS price -7/32 (.22 bp) frm yesterday’s close.

At 9:45 the June Chicago purchasing mgrs. index, expected at 52.4, came at 52.9 frm 52.4 in May. The employment index at 60.4 frm 57.0, new orders at 51.9 frm 52.9 and prices pd at 54.0 frm 60.4. The data slightly better than expected but no noticeable reaction to it as the stock market was already up over 170 points and the 10 yr -19/32 at 1.65% +7 bp.

At 9:55 the U. of Michigan consumer sentiment index was expected at 74.1, it fell to 73.2; the current conditions index at 81.5 frm82.1, the expectations index at 67.8 frm 68.9. All the indexes are the lowest since last Dec. There was no selling on the data as markets are totally consumed with what is presently seen as significant progress at the EU summit. More likely, a relief since there was little belief that anything would come from the 19th summit since the first 18 didn’t lead to anything of substance.

Although there was better news out of the EU summit that was widely expected to be anther summit with nothing emerging, the US interest rate markets continue to drift in their trendless and sideways moves. The 10 yr note support remains at 1.70% and strong resistance at 1.56%. The bullish bias on the US rate markets is still intact but is losing momentum over the last three weeks; we will hold for now but a move on the 10 yr above 1.70% will set off additional selling and rates will inch up. ON the downside for yields, there isn’t any momentum or reason now to add more bond buying.