Friday saw a little price decline; this morning started better recovering from the declines on Friday. The US stock market futures traded weaker early, supporting the bond and mortgage markets. After the strong three-day decline in rates last week, the bond and mortgage markets are now consolidating the strong rally. The good news so far is that there hasn’t been any selling, just no buying. At 9:00 this morning: the 10-year note +6/32 (18 bp) at 2.50% -2 bps; 30-year MBS price +14 bp.
Not much on the economic calendar this week but what there is will draw a lot of attention. Both existing and new home sales for April and the minutes from the last FOMC meeting (4/30) are the keys this week. The bond and mortgage markets continue to take their lead by how the stock market trades; don’t be misled, traders are moving back and forth between stocks and bonds in the last month. There is an increasing concern now that the economy isn’t robust and the outlook for increased growth has been lowered in the minds of many investors. This year is not going to grow at the 3.0% rate that was the consensus a month ago. Q1 GDP will end negative and Q2 outlook is being reduced.
At 9:30 the DJIA opened -46, NASDAQ -14, S&P -4; 10 yr 2.50% -2 bp and 30 yr MBS price +14 bp.
Tensions in Ukraine are lessening (maybe). According to the news reports, Putin has ordered Russian troops near the Ukrainian border back to base, the Kremlin said, signaling a possible easing of tensions six days before Ukraine’s presidential election. Ukraine will hold a presidential election next Sunday. Putin said contacts between the Kiev government and supporters of a decentralization of powers to the country’s regions was a welcome event. The take away for the US interest rate markets is that the Russian/Ukraine situation is becoming less a factor on safety into treasuries. The US rate markets now are focused on the increasing weakness in the stock market and, the what is now an inevitable move from the ECB to add additional stimulus. 90% of economists in the Bloomberg Monthly Survey predict the European Central Bank president will ease monetary policy in June after saying on May 8 that officials are “comfortable” with acting then. The rate markets in Europe continue to decline on the strong belief another round of QE is on the way. The fall in rates in Germany, France and other European countries has made US treasuries cheap with our 10-year note at 2.50%, while the German 10-year bond is trading at 1.34%.
No direct economic news this week until Wednesday. In the meantime there are a number of Fed officials speaking. At 12:10 today Dallas Fed pres. Fisher; Tuesday at 12:30 Philly Fed res. Plosser; Wednesday 11:30 Janet Yellen at NYU commencement, 12:50 pm Kansas Fed pres., George, at 1:30 Minneapolis Fed pres. Kocherlakota.
To push rates down further we are going to need news that supports the view that the economy is slowing, here and globally. If the outlook begins to change to one of a more positive nature, interest rates won’t have that major impetus. Geo-political issues for the moment are fading somewhat; not over but not the force driving rates lower in the last two weeks. Hardly any volume today in the stock or bond markets with no news.