Recap of Yesterday

  • S&P cuts Spain's outlook from stable to negative, warns of downgrade, saying the country will experience a “more pronounced and persistent deterioration” in its budget and a “more prolonged period of economic weakness”
  • TARP bailout fund extended to October. Spending limited to housing and small business. READ MORE
  • Fed Governor: Foreclosure Stabilization Requires Tailored Strategy. READ MORE
  • The dollar index declined 0.38% to 76.018. 
  • The S&P was +0.37% to 1,095, the Dow was +0.50% to 10,377, and the NASDAQ was +0.49% to 2,183.
  • The 10yr note auction (reopening) was met with weak demand. Indirect bidder participation was light, primary dealers took home a large chunk of the issuance.

The FN 4.0 ended the day -0-04 at 99-05 yielding 4.09% and the FN 4.5 went out -0-05 at 101-28 yielding 4.271%. The secondary market current coupon was 4.153%. The current coupon yield was 72 bps over the 10yr TSY rate and 59bps over the 10yr swap rate.  This week has been characterized by a lack of liquidity in the agency MBS market.

The 10yr TSY note went out -0-11 at 99-16 yielding 3.433%. The 2yr note was -0-01 at 100-00 yielding 0.746%. The yield curve STEEPENED 2bps to 269bps as the short end outperformed the longer maturities...AGAIN. A steeper curve = bad for mortgage rates.

So Far This Morning...

  • SHANGHAI +0.45%, HANG SENG -0.19%, TOPIX -1.25%, NIKKEI -1.42%, CAC+1.085, DAX +1.36%, FTSE +0.78%
  • President Obama accepts the Nobel Peace Prize. READ MORE
  • WSJ: American Dream 2: Default, Then Rent. READ MORE

The US Trade Deficit fell 7.65 in October to $32.9 billion. Imports +0.45, Exports +2.6%. Demand for imported oil fell to 8.349 million barrels per day, the lowest daily level since January 2000.  US exports at highest level since December 2008. A sign that global demand is improving/stabilizing.

Jobless claims rose 17,000 to 474,000 in the week ending December 5, 2009. Market was expecting 460,000,worse than expected and higher than previous read of 457,000. Continued claims fell to 5.157 million from 5.460 million in the prior week.  Four week new claims average fell to 473,750, lowest since Sept.27, 2008.

Here is an interesting note...unadjusted initial jobless claims rose to 664,865 from 460,162 last week. Seasonal factors affected the data!

After moving higher overnight, mostly at the start of the London trading session, "rate sheet influential" benchmark rates ticked up a few bps and the yield curve steepened after the data, nothing noteworthy though.

Rate sheet influential MBS coupon prices are starting the session in the RED. The FN 4.0 is -0-08 at 98-29 yielding 4.134% and the FN 4.5 is -0-07 at 101-21 yielding 4.298%. The secondary market current coupon is 4.20%, 5bps higher from yesterday's "going out" level. Yield spreads are WIDER into the down trade. Let's see if cheaper dollar prices spur any activity in the MBS market....(not holding my breath, bond auction at 1pm)

Mortgage rates will move higher ahead of the 1pm bond auction.