Update: The concerns over Greece and other European nations just won't go away . . Standard & Poors downgraded Greece's debt rating to junk and that is sinking stocks and causing a major rally in bonds. Not good for the world economic picture but very good for interest rates . . FLOAT
Here is today's Market Snapshot from RateAlert.com:
Treasuries and mortgages opened strong this morning as the debt concerns spread in Europe. It is Greece leading the problem but as each day passes with nothing accomplished the contagion is spreading to include Portugal, Spain and likely will include Ireland in the coming weeks. The growing debt problems in Europe are continuing to fuel safe haven moves to US treasuries and mortgages are taking the ride with them. Also adding support this morning, the US stock market is under pressure in the pre-market futures trading; at 8:30 the DJIA -11 with the other key indexes also weaker. The 10 yr at 8:30 +11/32 at 3.76% -5 BP, mortgage prices at 8:30 +8/32 (.25 bp). At 9:30 the DJIA opened -35, 10 yr +14/32 3.75% -6 BP, mortgage prices 8/21 (.25 bp)
German Chancellor Angela Merkel said today she is unwilling to release any financial help for Greece until the country comes up with a viable budget plan; so far that hasn't happened. Greece has 8.5 billion euros ($11.4B) of bonds coming due next month (May 19th) after the state election and the extra yield that investors demand to hold its 10-year bonds over German bunds jumped 93 basis points to 652 basis points yesterday. Yields stayed near the highest since at least 1998 today amid mounting concern Greece will ask investors to accept delayed or reduced payments on its debt. Greece came up with a one yr budget plan but that according to Merkel isn't enough, she wants at least a five yr plan.
The sovereign debt issues are unlikely to wane, we expect them to increase in concern within the global debt markets. As we have been noting in previous commentaries, Spain's economy is substantially larger than Greece and it too hangs on the edge of potential debt defaults as the European economies are lagging the rest of the world in recovery from the recession. Portugal and Ireland are in about as difficult situation as the contagion of rampant spending is pushing many secondary economies to the edge. As long as the crisis continues without resolution the US bond market will benefit and pull mortgage rates lower along with treasuries. Now we are watching countries in South America for the same problems, Argentina has appeared on the radar. All that said; in the end the EU and IMF will come up with money to keep Greece from defaulting, a default by Greece or any EU country would send the euro much lower, it has already declined 7.0% against the dollar this year and today is lower again.
At 9:00 the Feb Case/Shiller home price index of the 20 largest metro areas was expected to show the first improvement in 3+ yrs, up 1.1%. C/S reported prices in Feb declined 0.1% in the 20 largest metro areas, on a yr/yr basis however prices for the 10 and 20 metro areas increased 1.4%. For the 20 cities the yr/yr was expected to increase 1.2% but were half that at +0.6%. Prices continue to decline and C/S says it is too early to predict or expect home prices to start increasing. The reaction to the report sent treasury prices higher and mortgage prices a little better than prior to the data.
At 10:00 April consumer confidence, expected to have improved to 53.7 frm 52.5 in March, was better at 57.9. The expectations index, a measure of one yr out increased to 77.4 frm 70.4 in March. The initial reaction brought the stock indexes back to unchanged and somewhat softened the rate markets.
A little theater this morning in Washington; Lloyd Blankfein and The Fabulous Fab of Goldman/Sachs are testifying in Congress on G/S and how it conducted itself during the sub prime meltdown. Until now Blankfein has been rather outspoken and defensive on any of the allegations, will he temper his attitude in testimony and Q&A in what will likely be a contentious session? The crux of the issue is whether G/S traded against its clients by shorting the sub prime markets with credit default swaps. They did, and they profited from it, what remains is whether they were at the same time selling the junk sub prime CDOs to investors. The Senate's Permanent Subcommittee on Investigations released documents that showed the company "put its own interest and profit ahead of the interests of its clients."
This afternoon Treasury will sell $44B of 2 yr notes to begin three days of auctions totaling $118B. The 2 usually goes off well with strong bidding, today the safe haven concerns growing on the European potential debt defaults (lead by Greece) should add to the demand.
Today US rate markets are being driven mostly on safe haven moves with the debt problems in Europe; Greece, Spain, Portugal and Italy saw their 10 yr note yields jump as much as 50 basis points overnight on concerns the contagion is spreading for potential sovereign defaults. It is difficult to handicap in terms of the lasting impact on US rates moving lower, at the moment a plan is worked out to save Greece (and we believe it will happen) the need for safety will lessen and take away the present strong support for US treasuries.