Good Morning.
Remember we told you not to panic after the post-auction volatility yesterday?
see chart below...MBS prices are recovering yesterdays losses. :-D
The range did indeed moderate TSY prices overnight. The 10 yr TSY note yield ticked lower as market participants were seen "buying the dips"....adding support to our bullish bias towards a flatter yield curve.
Yesterday the S&P failed failed failed failed to break 888. Yet another technical sign that a bearish bias is taking a firmer hold over equity market. This morning futures indicate a weak open for all three major indices (Dow, S&P, NASDAQ)
If you are looking for a fundamental sign that the market is "nervous" about economic growth prospects...take a look at oil prices. Talks of inflation and rapid recoveries pushed Oil out of its Dec-Apr sideways trend (not the technical term btw)....however since late June prices have seemingly stalled. This reflects an easing of the marketplace's inflationary anxieties and a refocus on the possibility of deflation...well maybe not deflation but definitely a period of stagnation (not stagflation) or SLOW SLUGGISH ECONOMIC GROWTH. This outlook should continue to increase the market's preference towards risk averse assets...LIKE TREASURIES!!!
In other news...
-The US dollar fell against most currencies yesterday. The dollar did however gain on the yen. Weakness in commodities and the US dollar indicate the market believes further economic roadblocks lie ahead. Risk aversion is consuming the marketplace.
-Fed Vice Chairman Donald Kohn warned against politicizing the monetary policy and defended the continued independence of the Federal Reserve
-Initial Jobless Claims fell 52,00 to 565,000. This is the lowest number of new claims for unemployment insurance since January. Many were however skeptical of the decline due to seasonal adjustments and slowing layoffs from automotive sector.
-Mortgages insured by FHA/VA jumped to 35.9% of all applications in June, the highest percentage since 1990. Looks like more borrowers need looser FHA regs to qualify!
-Federal Reserve examiner says US banks should be closely monitoring commerical real estate holdings. Further stress tests suggested.
-3 month LIBOR continues trend of breaking own record lows, falls 0.0050 to 0.5050.
2s vs. 5s: 134bps
2s vs. 10s: 241bps
5s vs. 10s: 108bps
MBS Market Alerts
