Last Friday ahead of the long
Easter weekend, some glimmer of progress with the Russia/Ukraine situation and
a very firm Philly Fed business index sent interest rates spiking higher with
the 10 yr jumping to 2.72% up 8 bps in yield. 30 yr MBS prices tumbled 51 bps.
This morning the 10 is better and MBS prices getting a little reprieve; at 9:00
the 10 at 2.70% with 30 yr MBS price +17 bps. Over the weekend there was some
gun fire in Ukraine with separatists being shot by “unknown” gunmen; nothing
serious however in terms of markets. Markets remain subject to swings in
sentiment about the Ukraine news; last week for a moment when Russia, Ukraine,
the US and EU met in Geneva there was brief optimism that some progress might
be in the offing; four days later there has been gun fire, escalating renewed
concerns. Rate markets were hit very hard on Friday, this morning with less
enthusiasm some small improvements in the bond market.
Where are those higher interest
rates that most everyone was forecasting this year?
So far bets that rates would increase have come up losers as the Fed is
relentless in talking and doing things that have kept rates down; good for
mortgages and potential home buyers, but not many are buying into the reality
that higher interest rates are inevitable. How long the Fed can enjoy the
success of keeping rates at the present levels is a question that big investors
have gotten wrong so far this year. Differing comments from Janet Yellen have
kept interest rates tied in very narrow ranges now for the last three months.
At the March 19th FOMC meeting Yellen stirred the pot with her remarks that
after the end of tapering (expected in Oct) six months later the Fed would
begin increasing the FF rate; last week she back-peddled saying the Fed was in
no hurry to increase rates. The Fed’s new strategy? Keep them guessing, keeping
rates stabilized?
When will interest rates begin to
increase? So far those that have bet by now rates would be 25 bps higher
than they are have taken sizeable losses on that investment. Nevertheless,
interest rates will increase of that there shouldn’t be any doubt; when they
will break out of the present long narrow range is keeping traders on edge. We
continue to expect the US stock market will experience a significant decline,
so far it hasn’t happened. If our outlook is wrong rates are going to increase;
if we are correct rates will hold here and likely fall a little. That said, our
primary focus is on the near term outlook; rates for the present are not likely
to change much in the next few weeks.
Monday,
10:00 am March leading economic indicators (as reported +0.8%)
Tuesday,
9:00 am FHFA Feb housing price index (+0.3%)
10:00 am March existing home sales (4.56 million units -0.7%)
1:00 pm $32B 2 yr note auction
Wednesday,
7:00 am weekly MBA mortgage applications
10:00 am March new home slews (455K units +3.3%)
1:00 pm $35B 5 yr note auction
Thursday,
8:30 am weekly jobless claims (+8K to 312K)
March durable goods orders (+2.0%, ex transportation orders +0.9%)
1:00 pm $29B 7 yr note auction
Friday,
9:55 am U. of Michigan consumer sentiment index (82.6 from 82.6
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