The stock market was mixed with the DJIA losing just -5.88 and the NASDAQ gaining +13.52.
There was a light start to the week after the bond market was closed yesterday in observance of Columbus day.
Bonds shot up right out of the gate as the ECB started a hearing with the European Court of Justice (ECJ) to hear testimony on the ECB’s non-existent Outright Monetary Transactions program (OMT). Several of the Eurozone countries (lead by Germany) are not in favor of the bond buying program.
Mortgage Backed Securities (MBS) Overview
Throughout the day there were a few items that helped MBS to reach their best levels of the day at 3:26EST with a gain of +61BPS before pulling back from those highs.
MBS rallied on the comments (and repeat these are JUST comments) by the S.F. Fed President. He stated that if inflation remains significantly short of the Fed’s expectations and/or Europe’s woes dampen the fragile U.S. economy, then the Fed may have to start buying bonds again. (Side note: when interest rates are very low….you don’t buy more bonds to lower rates even further…that’s a bone-head idea…if 30 year fixed rates are below 4%…lowering them further won’t cause more to be approved for a loan.)
France: What Treaty? The French have submitted a budget which shows a deficit larger than their treaty with the Eurozone allows. They refuse to follow the rules because the rules don’t help them. You can see why everyone is worried about the political state and future of the Eurozone.
Thirty-year bond yields dropped below 3 percent for the first time since May 2013 as reports showed U.K. inflation dropped to a five-year low in September and German investor confidence eroded. A gauge of inflation expectations measured by the difference between yields on 10-year notes and similar-maturity inflation-index debt traded close to the lowest in more than a year. Volatility reached the highest level since January.