Treasuries and MBSs started lower this morning (price) with pre-market futures trading pointing to a soft open in the stock market. At 9:00 the 10 yr at 1.63% +2 bp and MBS price +2 bp frm yesterday’s close. At 8:30 Oct housing starts and permits were released; starts were expected to have declined but as reported up 3.6% while permits were in line at -2.7%. Starts are at a four year high but well off the norms that were seen prior to the housing market collapse, in the early 2000s starts were at about 1.2 mil annualized units, Oct starts were 849K annualized. Nevertheless starts are growing. Commerce dept. said the super storm that hit the east had little impact on the starts as reported, Nov starts are likely where we will see the effects of Sandy. Yesterday the Nov NAHB housing market index jumped 46 frm 41 in Oct, the highest index reading since May of 2006. The housing sector is definitely moving out of the woods, existing home sales in Oct +2.1%.
At 9:30 the DJIA opened -45 after increasing 207 points yesterday, the NASDAQ -8, S&P -5; the 10 yr note at 9:30 1.63% +2 bp, 30 yr MBS price +2 bp frm yesterday’s close.
At 12:15 this afternoon Ben Bernanke will speak at the NY Economics Club. Markets will focus on any clue on what the Fed chief has in mind for the future in terms of anymore easing. There is an increasing belief that the FOMC will increase purchases of US treasuries when it meets on Dec 11 and 12. In Europe today European finance ministers will meet in Brussels to discuss the gap in Greece’s public accounts ($19.2B). EU leaders last week gave the country another two years to cut its budget deficit. Moody’s cut France’s credit rating yesterday, nothing unusual as Moody’s is cutting credit ratings everywhere, including US treasuries.
The stock market is weaker this morning mostly on news that HP will take an $8.8B hit linked to its acquisition of Autonomy Corp that HP says were serious accounting improprieties that led it to pay much more than the company was worth. HP stock price down to lows not seen in 20 years and dragging the overall market lower.
Markets this week are quiet and likely to remain that way through the rest of the week as many are on holiday. The 10 yr note still cannot breach 1.60%/1.58% area and hold it. The general outlook for US long term rates is that rates will fall further; some are even looking for rates to make new lows (the low on the 10 is 1.40%). So far though traders and investors are not stepping into the fixed income markets; foreign investors cut US treasury purchases in Sept to almost nothing. The Mid-East is boiling, the global stock markets have experienced heavy selling over the last month, Europe’s debt crisis is not improving, the US fiscal cliff is still an uncertainty, the Fed is buying treasuries and MBSs, and Europe has fallen back into recession; none of those issues has had any real impact on the bond market---so far.