After two weeks of trying and failing, today the 10 yr note yield at 8:30 was trading well below 1.70% at 1.66%; all we need now is for the note to close below 1.70% to start another leg lower in interest rates. Getting a close below 1.69% appears to be failing as the day proceeds. Rate markets started strong this morning on belief that the ECB will cut its interest rates when it meets next. Europe’s economy is still slowing increasing optimism that the ECB is about to cut rates to try and stem the tide of continuing decline of the EU economy. Services and manufacturing shrank in the euro area for a 15th month in April, a report showed today. Not only Europe is slowing, so too is China; similar to US ISM reports the preliminary reading of 50.5 for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today compared with a final 51.6 for March. China still growing however, leaders in the country are deliberately slowing growth to fend off inflationary pressures.
Feb FHFA housing price index was on target, up 0.7% as expected; yr/yr +7.1%. While there has been improvement for a number of months, the U.S. index is 13.6% below its April 2007 peak and is roughly the same as the October 2004 index level. Still, the improving prices will help add supply to the housing market. Shortages of supply for housing markets continue to place upward pressure on prices. Prices jumped 15.3% from a year earlier in the Pacific area, which includes California, Washington and Hawaii. In the Mountain region, including Arizona, Colorado and Nevada, the gain was 14%. The Middle Atlantic area -- New York, New Jersey and Pennsylvania -- had the smallest increase, at 1.9%. The South Atlantic region had the biggest gain from January. Prices climbed 17% in the area, which includes Florida, Maryland and Virginia.
At 9:30 the DJIA opened up 97 points, NASDAQ +23, S&P +9; 10 yr note 1.68% -1 bp. 30 yr MBS price at 9:30 +9 bps. The strong open in the stock market took some away frm the earlier improvements seen at 8:30.
At 10:00 March new home sales were expected up 2.0% at 419K annualized units. As reported sales were at 417K units up 1.5% frm February. Feb sales were revised to -7.6% frm -4.5%. The median sales price increased to $417K frm $411K in Feb; based on current sales pace there is a 4.4 month supply, unchanged from Feb. Overall the sales were better than expected, especially compared to March existing home sales released yesterday that were down 0.6%.
Treasury will auction $35B of 2 yr notes at 1:00 pm; recent auctions have been tepid at best.
Today the bond market started at 1.66% for the 10 yr note, by 10:00 however the yield is back to 1.70%. It didn’t hold and now back to key resistance levels at 1.70%?1.69%. All our technical models are still holding bullish reads but for two weeks the 10 hasn’t been able to close below chart resistance. Today the rate markets lost their improvements as the stock market climbed again, the DJIA over 100 points higher.