Expecting interest rates will fall much more may lead to a missed opportunity.
By Jessica Shanahan, Premier Lending LLC adapted from the Shirmeyer Rate Market Report
Treasuries and mortgages weaker this morning on a better December retail sales report at 8:30. Sales in December were expected to be up 0.1% overall and +0.4% when auto sales were extracted; sales increased 0.2% and excluding autos +0.7%. Although sales were better in December, November sales were revised lower, from +0.7% to +0.4% taking a little of the December luster away. Mortgage prices were down 12 basis points prior to the report and there was no initial change after the data was reported. By 9:00 however the 10 yield had increased to 2.86% +3 bp and MBS prices -18 bps from yesterday’s close.
Retail sales better in December but November weaker than originally reported, combine the two and sales were about what had been expected. Talk of better holiday sales is working through the stock market with a better open at 9:30 but for all of 2013, retail sales rose 4.2% from the prior year, following a 5.4% gain in 2012. Hardly any reason to celebrate, sales in 2013 weaker than 2012, but that is only half the story; internet sales were up 10.3% for 2013. After strong selling yesterday in the equity markets the DJIA opened +56, NASDAQ +20, S&P +8. 30 yr MBS prices at 9:30 -22 bps after increasing 43 bps yesterday; the 10 at 9:30 up 2 bps to 2.85%.
Two Fed officials out later today; at 12:45 Plosser from Philly and at 1:20 Fisher from Dallas. Yesterday Lockhart (Atl) didn’t directly address the December employment report but in his text he alluded to it, saying ….”The trend in jobs growth improved throughout most of 2013, notwithstanding the surprisingly soft initial reading for December…..” The key word in the line is initial; suggesting he expects the data to be revised higher. Traders will be focused on any remarks from Plosser and Fisher on the employment report.
The 10 year treasury will find strong headwinds at 2.80%, we do not believe the rate will decline below that. Nothing has changed other than the employment data that hardly anyone believes. Markets continue to expect the Fed will taper through 2014 at each FOMC meeting, almost every 2014 economic forecast out there is expecting increased economic growth this year. Those are not building blocks for lower interest rates. After the 10 tried to break above 3.00% on the tapering decision and couldn’t climb above it, traders were increasingly nervous that a rebound may occur. The employment report was all it took; it is not likely rates will fall much more. The decline in rates is a technical correction in a bear market, not a change in sentiment. Expecting interest rates will fall much more may lead to missing an opportunity especially to re-finance for those that let the ship sail earlier this year.
IF FLOATING, KEEP ALERT.
PRICES @ 10:00 AM
10 yr note: -6/32 (18 bp) 2.85% +2 bp
5 yr note: -3/32 (9 bp) 1.61% +2 bp
2 Yr note: -1/32 (3 bp) 0.37% unch
30 yr bond: -8/32 (25 bp) 3.79% +1 bp
Libor Rates: 1 mo 0.160%; 3 mo 0.238%; 6 mo 0.338%; 1 yr 0.573%
30 yr FNMA 4.0 Feb: @9:30 103.90 -22 bp (+6 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Feb: @9:30 102.94 -4 bp (+16 bp frm 9:30 yesterday)
30 yr GNMA 4.0 Feb: @9:30 105.44 -14 bp (-6 bp frm 9:30 yesterday)
Dollar/Yen: 103.67 +0.67 yen
Dollar/Euro: $1.3677 +$0.0006
Gold: $1249.60 -$1.50
Crude Oil: $92.58 +$0.78
DJIA: 16,310.72 +52.78
NASDAQ: 4140.73 +27.43
S&P 500: 1826.81 +7.61
More Friday, have a great week!
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