Interest rates continue to increase; this morning the 10 yr hit 1.86% in very early trading. Since last Friday’s employment report the bellwether 10 yr has increased 22 bp in rate, a sizeable move in such a short time. On April 3rd the 10 yield was 1.86%, it took a abut a month for the 10 to fall to 1.63% last Thursday, it has taken five days to return to that level. The pace of the increase with constant selling suggests that the long term treasuries have met their waterloo at the 1.60% and likely won’t get back there any time in the near term future. Every technical model we use and various chart points have given way with ease. 30 yr mortgage rates have increased 10 basis points in rate, the price of a 30 yr MBS -63 bp since last Thursday’s close (5/2).
The rapid increase may be a little too much in too short a time frame, however the speed with little attempt to take “advantage” of the higher rates is not a positive event. It suggests the strong possibility that we have hit the end of the rate decline cycle. Never say never, never say always; unless there is some kind of unexpected market shock it appears interest rates are running out of room to the downside. March and April data have been soft, that helped the fixed income markets now after the better employment report in April investors and large banks and fund managers are expecting May will show improvements in the economy.
The Fed’s easing’s have failed to meet the Fed’s objectives, increasing employment and the economy. There is a growing view that the Fed should begin to think more seriously about winding down its stimulus moves. Fed officials are slowly moving from their strong stand about the easing to more belief that since it isn’t working as it was intended the Fed should start unwinding it soon. It till may be the end of the year but markets are already reacting to the possibility. In the meantime other central banks are increasing their easing stances, maybe it is time to let other banks take up the challenge.
At 9:30 the DJIA opened +21, NASDAQ +12, S%P +3; 10 yr note at 1.84% +3 bps. 30 yr MBS price -12 bp frm yesterday’s close.
The US annual budget deficit for fiscal 2013 is now $231B less than what was the case a year ago at this point in time. Treasury now saying it will have enough income to stave off any debt ceiling concerns clear through Sept, the last month of this fiscal year. Fannie Mae’s payment to Treasury to begin paying tax payers back for the bailout in 2009 and higher tax revenues are lowering the annual budget deficit that has been about $1 trillion a year for the last five years.
Bernanke began a short speech 30 minutes ago. He is scheduled to allow 15 minutes for Q&A, so far we haven’t gotten any details. He said the economy is still n difficulty after the housing bubble broke four years ago. He talked on the Fed’s monitoring the financial system. The speech is about financial regulations and the impact on the overall financial system. Can systemic risk be identified before a crisis develops? Bank stress tests explained. No questions concerning the Fed’s easing thoughts.
The only data today is later this afternoon when Treasury reports its budget data for April. It is expected that treasury in April had a surplus of about $100B.