The yield curve steadily steepened overnight as market participants took defensive positions and consolidated profits ahead of the Goldman earnings release. Since yesterday afternoon, 2s. vs. 10s have increased 10bps to 251bps as money jammed into the front end of the yield curve, pushing the 10 yr note yield 10bps higher to 3.44%.
On the equity side of the market traders already baked Goldman earnings in stock prices...classic buy the rumor, sell the news! So far this morning the S&P remains range bound as it has failed to hold gains over the 20 day moving average (purple) and the 50 day moving average (green). VOLUME IS ANEMIC IN EQUITIES...no strength to these rallies people. My long term outlook still applies...
905 should serve as overhead resistance for the S&P for now....I want to reiterate this though: THE MARKET WILL NOT SEND US CLEAR CUT CONFIRMATION OF THE "ROAD AHEAD" UNTIL AT LEAST AFTER JP, BoA, AND CITI REPORT EARNINGS. This implies we could darn well could see another test of 905 in the S&P and maybe even a run to 912.
Further confirming my long term bias towards lower rates are prices of NYMEX crude. Early in the session prices spiked as stock futures priced in GS earnings reports, however prices have since fallen below $60 again as the stock market is not serving as good indication of the market's economic outlook.
In MBS world volume is apathetic at best. Yield spreads are slightly wider as the FN 4.5 is feeling the effects of a steeper yield curve and higher options volatility. Parnertia is however keeping prices close to 100-00...fixed income remains skeptical of a rally in the equity side of the market.
Overall, mortgage rates are a few bps higher this morning. Although I have seen several pass through lenders pricing agressive this morning, I have also seen some drippy rate sheets coming out of the bigger/commercialized shops (drippy= juicy= filled with margin).
2s vs. 5s: 140bps
2s vs. 10s: 251bps
5s vs. 10s: 11bps
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