With the exception of last Thursday (ECB day), rates markets have been painstakingly descending the proverbial staircase following the elevator ride higher on the first week of 2013. Whereas last week's Mon-Thu picture left things more open to interpretation (and worry), Friday through this morning has been characterized by a relatively more stable and determined move lower in yield. Treasuries improved moderately overnight, helped along by many market participants returning from holiday in Asia, as well as falling Bund yields (which Treasuries tend to follow) in the European session. Bond markets added to gains at the start of the domestic session with some attention being paid to the absence of any surprises from Bernanke yesterday evening and further supportive remarks for QE from 2013 FOMC Voter Rosengren. Economic data was digested fairly well and ultimately gave way to the best levels of the morning ahead of the opening bell for stock markets. Stocks, however, have been putting in steady gains since then, helping perhaps, to reinforce a "risk-on" bounce that's currently keeping a floor under Treasury yields (1.8114 in 10's) and a lid on MBS at 104-19 in Fannie 3.0s. We'd probably stay cautious against any technical breaks of the morning's weakest levels--104-16 in MBS and 1.83 in 10yr yields as an early indication that we're entering something of a consolidation pattern after more than a week of gains.
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Pricing as of 11:06 AM EST
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Bond Markets Ratchet To Best Levels Of The Year
While MBS and Treasuries gapped to weaker territory following the Fiscal Cliff stop-gap deal on the year's first trading session, the bigger swings to the downside were on subsequent sessions. These came courtesy of the much-maligned FOMC Minutes and a moderately bullish Employment Situation report.
While it's too late for those developments to avoid suggesting a longer term trend of rising yields, those sharp moves have progressively been made to look like the upper limits of that longer term range with subsequent "ratcheting" to better and better levels. The ratcheting continued overnight as Tokyo was back in action after yesterday's market holiday. Asian markets were tepid, but positive for US Treasuries to kick off the overnight session, and Europe maintained a supportive backdrop into the domestic session.
Stateside, the morning opened with a speech from Boston Fed's Rosengren, now a voter for 2013, who couldn't have been more clear in saying "Continued monetary accommodation is absolutely appropriate and indeed needed as long as we are projected to miss on both elements of the Fed’s dual mandate, inflation and employment." In later Q&A, he said he didn't expected to be at the point of exiting an accommodative policy stance for "most of the year."
Economic data was plentiful at 8:30, with Retail Sales leading the way. The stronger than expected headline there initially provided for a microscopic move higher in yield and equities futures, but the internals of the report suggested that much of the "beat" was driven by Autos and Gas (in fact, excluding those two, the report was right on target).
Combining those "yeah buts" on Retail Sales with the much weaker than expected Empire State Manufacturing Survey and unimportant Producer Price Index, and bond markets edged tot heir best levels of 2013, though still face an appreciable gap to get back to December 31st territory. Fannie 3.0s are up 6 ticks on the session at 104-18 and 10yr yields are down more than 3bps from 5pm levels to 1.8149.
Equities markets opened in weaker territory with S&Ps down about 5 points from yesterday's close, but have been ticking very slightly higher in the first few minutes of the cash open for stocks. We'd also note that Bernanke's speech last night offered no new points of view from the Fed Chairmen, which is exactly what bond markets needed to hear. In the absence of a firm push back against recent concerns stemming from the recent FOMC Minutes, Bernanke's equanimity regarding the necessity and appropriateness of quantitative easing, combined with assurances that the Fed knows how to exit when the time is right, helped the slow and steady overnight improvements. It also potentially adds to the positive backdrop this morning and does so in such a way that markets haven't had a major reactionary shift following his speech. Having had a chance to pile on to recent concerns about the QE discontinuation outlook, Bernanke simply stepped out of the way rhetorically, effectively saying "as you were" to bond markets.
ECON: Producer Prices Lower Than Expected, Core PPI On Target
- PPI -0.2 pct vs -0.1 pct consensus
- Labor dept. says most of decline due to food prices
- excluding food/energy, "core PPI" +0.1 vs +0.1 consenus
- 2012 Core PPI +2.0 vs +2.1 Consensus
- Inflation is not currently an issue for markets and the Price Index reports have not been market movers for quite some time. This could change when inflation starts picking up, but until then, PPI and CPI are overlooked in favor of other economic metrics.
The Producer Price Index for finished goods declined 0.2 percent in December, seasonally
adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods fell 0.8
percent in November and 0.2 percent in October. At the earlier stages of processing, prices
received by manufacturers of intermediate goods moved up 0.3 percent, and the crude goods
index increased 2.5 percent. On an unadjusted basis, the finished goods index rose 1.3 percent in
2012, compared with a 4.7-percent advance in 2011.
ECON: Empire State Survey In Negative Territory For 6th Straight Month
- Empire State Index -7.78 vs +0.00 Consensus
- Employment -4.3 vs -9.68 in Dec
- New Orders -7.18 vs -3.44 in Dec
- Prices Paid 22.58 vs 16.13 in Jan
- Economists initially expected a slightly higher than breakeven reading on this one (+0.2), but the consensus recently came down to +0.00. Either of those figures would have ended a 5 month stint in negative territory, so today's additional ugly reading of -7.78 with no marked revision to last month's crappy numbers is sufficiently bearish enough to help the case against reading much economic positivity into the slightly stronger Retail Sales numbers. A supporting actor, to be sure, but helpful.
The January 2013 Empire State
Manufacturing Survey indicates
that conditions for New York
manufacturers continued to decline
at a modest pace. The general
business conditions index was
negative for a sixth consecutive
month and, at -7.8, was little
changed from its recent readings.
The new orders index fell four
points to -7.2, and the shipments
index declined a full ﬁ fteen points
to -3.1. Price increases picked up,
with the prices paid index rising
six points to 22.6 and the prices
received index rising ten points to
10.8, the highest readings for both
of these indexes in several months.
Labor market conditions remained
weak, with the indexes for both
the number of employees and the
average workweek remaining below
zero for a fourth month in a row.
The level of optimism about the
six-month outlook rose somewhat
from December, but remained
low compared with levels in early
2012. Signiﬁ cantly, the capital
expenditures index fell to 4.3, its
lowest reading since 2009.
In a series of supplementary
questions, manufacturers were asked
about anticipated changes in their
workforce and the factors underlying
these changes. Twenty-seven percent
of survey respondents indicated
that they expected the total number
of workers at their ﬁ rm to increase
over the next twelve months, while
19 percent predicted declines in
their workforce—a considerably
less positive balance than in last
January’s survey. Among ﬁ rms
planning to boost employment, high
expected sales growth was widely
reported to be the most important
impetus to hiring; conversely, low
expected sales growth was most
widely cited as the primary restraint
on hiring. Sales growth was also
seen as the primary factor behind
employment increases and decreases
in the 2012 survey.
ECON: Retail Sales Slightly Higher Than Expected
- Sales +0.5 vs +0.2 Consensus
- Excluding Autos +0.3 vs +0.2 Consensus
- Market Reaction: Stocks and Bond yields moved anemically higher in a sort of obligatory nod to the headline, but have since fallen back to or below previous levels. The headline was more bullish than the internals and is being somewhat offset by other data, including a much weaker than expected NY Fed Index.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for
seasonal variation and holiday and trading-day differences, but not for price changes, were $415.7 billion, an increase of 0.5 percent
(±0.5%)* from the previous month and 4.7 percent (±0.7%) above December 2011. Total sales for the 12 months of 2012 were up 5.2
percent (±0.6%) from 2011. Total sales for the October through December 2012 period were up 4.2 percent (±0.5%) from the same
period a year ago. The October to November 2012 percent change was revised from +0.3 percent (±0.5%)* to +0.4 percent (±0.2%).
Retail trade sales were up 0.4 percent (±0.5%)* from November 2012 and 4.4 percent (±0.8%) above last year. Nonstore retailers were
up 12.6 percent (±2.3%) from December 2011 and miscellaneous store retailers were up 9.9 percent (±5.6%) from last year.
Live Chat Featured Comments
Oliver S. Orlicki : "AFR and Fifth Third are the only ones I know of who are doing them with no appraisal"
Oliver S. Orlicki : "Appraisals are now required. They pulled the program a couple of weeks ago."
Ira Selwin : "http://www.iconwholesale.com/TopNavFileUpload/VA%20Matrix%20Revised%2001%2003%2013.pdf"
Roger Moore : "they clain no appraisal, but do they pull an AVM?"
Roger Moore : "anybody used Icon's VA IRRRL product?"
Matthew Graham : "RTRS- KOCHERLAKOTA-FED COULD PROVIDE ADDED STIMULUS BY VOWING LOW RATES UNTIL UNEMPLOYMENT FALLS TO 5.5 PCT "
Matthew Graham : "RTRS- FED’S KOCHERLAKOTA CALLS FOR MORE MONETARY ACCOMMODATION, CITING LOW INFLATION, HIGH UNEMPLOYMENT "
Christopher Stevens : "looks like the 10YR is safely back in the trend channel (for now)"
Ira Selwin : "risk/reward, always the key"
Victor Burek : "it woudl definitely be a more to risk than gain decision"
Andy Pada : "yeah, that is what I'm thinking as well."
Victor Burek : "i would say lock Andy cause who knows what will happen"
Matthew Graham : "again, "in theory," but we never got to test it due to the surrounding circumstances, and were left with the impression that no one gave a damn about the debt ceiling or the downgrade as far as bond markets were concerned. That could be different this time around without Europe on a major panicky downswing and with the Fed not likely to be adding stimulus."
Victor Burek : "CS, i agree, but there woudl be much less supply of new treasuries..and i think the recession that would follow would cause a flight to safety..we are still the cleanest dirty shirt"
Andy Pada : "I guess the question is what would you do as a loan officer the day before we hit the debt ceiling? Lock or don't lock?"
Matthew Graham : "yeah, I think that's how the theory goes. We didn't get to test it very well last time because Europe was tanking and the Fed's debut of of "2013 verbiage" followed a few days later."
Christopher Stevens : "VB- conventional wisdom would suggest the US debt is downgraded and flows into treasuries would slow causing rates to increase. I am thinking that QE intervention keeps rates low regardless of this if it were to happen and its just a bunch of chest beating by the white house"
JRS : "The way I understand it, hitting the debt ceiling would increase speculation that the US wouldn't be able to pay on its bonds. The increase in risk of purchasing US debt would drive rates upwards."
Victor Burek : "we got downgraded, and rates fell..hitting debt ceiling we woudl be borrowing less, less supply. it would most definitely cause a recession which is also supportive of low rates"
Victor Burek : "not so sure hitting the debt ceiling would cause rates to spike..why would they?"
Christopher Stevens : "Andy here is an article regarding Obama's news conference yesterday http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/14/three-ways-hitting-the-debt-ceiling-could-increase-the-deficit/"
Matthew Graham : "RTRS - U.S. DEC PPI -0.2 PCT (CONSENSUS -0.1 PCT), VS NOV -0.8 PCT "
Matthew Graham : "RTRS- NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT -4.30 IN JAN VS -9.68 IN DEC "
Matthew Graham : "RTRS- NY FED'S EMPIRE STATE INDEX -7.78 IN JANUARY (CONSENSUS 0.00) VS REVISED -7.30 IN DECEMBER"
Matthew Graham : "RTRS- US DEC RETAIL SALES EX-AUTOS/GASOLINE +0.6 PCT VS NOV +0.6 PCT (PREV +0.7 PCT) "
Matthew Graham : "RTRS- US DEC RETAIL SALES +0.5 PCT (CONSENSUS +0.2 PCT) VS NOV +0.4 PCT (PREV +0.3 PCT) "
Andy Pada : "President Obama, in yesterday's presser, stated that if debt ceiling was not raised, interest rates would rise. Is this correct and if so what is the rationale?"
Andy Pada : "GM. Lots of data coming out in a few minutes."
Oliver S. Orlicki : "green start. 1.82. Gm All."