Tuesday, December 28, 2010
In very early trading this morning the rate markets were unchanged, but as the morning advanced some minor selling with the stock indexes pointing to a firmer opening. That said, this is holiday activity that has little substance with many traders still out until next Monday. London markets closed today for Boxing Day, Asian markets thin. I cannot wait for this week to end and we get back to real trading, it is difficult this time each year to make any intelligent assessments based on price action; its an annual two weeks of chop on thin trading. It takes a full complement of investors and traders to completely judge the temperament of all markets. While it is more difficult, nevertheless price movement is still movement and has to be considered. Putting some perspective on it, on Friday 12/17 the 10 yr note yield was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-23/32; at 9:00 am this morning the 10 yr rate was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-20/32.
The Johnson Redbook retail sales data for the week before Christmas jumped a strong 4.6% following 3.8% increase the week before. For the entire month of Dec the index increased 0.4% from Nov. Much better sales the last two weeks of Dec, consumers spent more than what was expected and adding to the view that the economy will have a strong year next year compared to this year.
At 9:00 the over-rated Case/Shiller Oct home price index; yes I believe it is over-rated by traders but it is what it is as “they” say. The index for the 20 city index was expected to be +0.1% as reported it fell 1.3%, Sept was revised from -0.5% to -0.8%. Yr/yr the 20 city price index was down 0.8% with forecasts of a decline of only 0.1%. As usual the report had no reaction in the financial markets (stock indexes or the rate markets).
At 10:00 the Dec Conference Board’s consumer confidence index is a data point that has meat on the bone. The expectations were for the index to increase from 54.1 to 56.4; the index was lower at 52.5 frm revised 54.3 in Nov; the expectations outlook index fell to 71.9 frm 73.6 in Nov. Weaker but no initial reaction to the data.
At 9:55 the Richmond Fed business index, one of the Fed’s regional measurements, increased to an all-time high at 25 frm 9 in Nov.
The Fed after two days of not buying treasuries is back today; buying issues dated between 06/30/13 – 11/30/14 totaling about $6 to $8B. Not a big deal and part of QE 2.
This afternoon Treasury will sell $35B of 5 yr notes; yesterday’s 2 yr auction was well bid with its rate 2 basis points lower than what was expected on the when-issued trading yesterday morning.
Generally better retail sales and the surprising Richmond Fed index added more selling from the levels where prices were set earlier; the 30 yr mtg price at 9:30 -.16 bp at 10:05 -.34 bp). Lenders may already be thinking of re-pricing lower. Be alert.