Early this morning prior to 8:30 the 10 yr note traded weaker at 1.72% +1 bp and 30 yr MBSs were down 6 bp frm yesterday’s close; stock indexes slightly better. March durable goods orders were reported at 8:30, the weakest since last August. Orders were expected to decline 2.5%, as reported orders were down 5.7%; ex the volatile transportation orders markets were looking for an increase of 0.5%, as reported orders fell 1.4%; Feb orders ex transportation were down 1.7%. Overall February orders were originally reported +5.7% but were revised lower to +4.3%. Orders for automobiles increased 0.2% after a 4.7% jump in February. Cars and light trucks sold at a 15.2 million annual rate in March after 15.3 million the prior month. The reaction to the weak durable goods orders tempered the initial improvement in US stock index futures and provided support in the bond and mortgage markets.
At 9:30 the DJIA opened -20, NASDAQ -9, S&P -2; 10 yr note at 1.71% unch and 30 yr MBS prices +6 bp frm yesterday’s close.
In Europe the Ifo institute in Munich said today its index of Germany’s business climate, based on a survey of 7,000 executives, dropped to 104.4 from 106.7 in March. A composite index of euro-area services and factory output based on a survey of purchasing managers in both industries by London-based Markit Economics held at 46.5 for April, indicating a contraction, a report yesterday showed. Similar German PMI data also showed a contraction. There is increasing speculation that when the ECB meets on May 2nd the bank will lower interest rates as the EU economies struggle with Germany’s insistence on strong austerity in the southern Europe countries thatr are teetering on depression with continual increases in unemployment. There is a slowly increasing consensus in the EU that Germany, the only strong economy in the EU, is being too restrictive with its demands, driving the EU economies down. Now Germany’s economy is beginning to feel the pinch as its output slips.
The weekly mortgage applications data frm the MBA out this morning; the overall composite index up 0.2%, the purchase index +0.3% and the re-finance index +0.3%. The previous week the composite index was +4.8%, purchase index +4.0% and the re-finance index +5.0%. The purchase index in the latest week is climbing slowly in what is a positive indication for the spring housing season. The index is at its highest level since the stimulus efforts of May 2010. Helping both indexes (purchases and re-finances) was a dip in mortgage, down 2 basis points for conforming loan balances ($417,500 or less) to an average 3.65% (MBA quotes interest rates with points added for origination and other fees).
At 1:00 Treasury will auction $35B of 5 yr notes; yesterday’s 2 yr auction continued the trend of so-so auctions. Over the last couple of months the demand for US treasuries at the auctions of treasuries has been a little less than earlier this year but there hasn’t been any significant reaction to lesser demand. Treasury auctions $165B a month frm 2s to 30s.
Everything is status quo in the bond and mortgage markets. Technicals still look positive but there has been almost no change in rates for the past two weeks. Yesterday the twitter event that sent bonds lower and stocks down lasted about 10 minutes, the 10 fell to 1.64% frm 1.70% then back to 1.71% in a matter of minutes. We completely ignore the drop in the 10 yr note rate; the 10 cannot so far close below 1.69%. Mortgage prices yesterday were not impacted on the 20 minute volatility caused by the hacking of APs Twitter account.