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Morning Market Updates
Rate sheet influential MBS coupons are outperforming their stagnating benchmark counterparts thanks to short covering and generally favorable technical conditions in TBA-land (more buyers than sellers!). The secondary market current coupon is 2.2bps lower at 4.147%. We're not sure how long this technical outperformance vs. benchmarks will last though. Treasury likely views this environment as the perfect time to offer up a chunk of their MBS portfolio.
10:49AM :
Even After Data, Range-Bound Stagnation Continues For Bonds
Heading into the 9:55 Consumer Sentiment numbers, 10yr yields had gone no higher than 3.41 and no lower than 3.385. And following what was, by all rights, a bond-bullish report, that same 3.385 level capped out any gains, sending yields back toward the other end of the range. It's the same boring story for MBS, the highest highs and lowest lows today lie INSIDE yesterday's highs and lows, and all the time orbiting the same 101-28 area, a veritable neutron star of gravitational influence for FNCL 4.5's. We'd need to see a break below 101-26 for reprices to be a major threat and above 101-30 to see very small reprices for the better. So far, it's another boring, sideways, stagnant day.
Consumer confidence declined sharply in March due to rising gas and food prices. While further declines may well occur in the months ahead, consumers have not adopted the same deep pessimism that was prevalent a few years ago. Nonetheless, the March drop was record setting; it was the 10th largest monthly change ever recorded. Most of the decline was in the Expectations Index, which recorded its 5th largest monthly decline. Although references to employment gains still exceeded mentions of job losses, three-quarters of all consumers expected no additional declines in the unemployment rate in the year ahead. Perhaps the most significant countervailing trend was that there was no decline in buying plans despite all the widespread economic gloom. Just one-in-four consumers expected their financial position to improve during the year ahead, returning to near the lowest level ever recorded of 20%. Scarce income gains as well as rising food and gas inflation were responsible for these dismal financial expectations. Only 38% of all households expected income increases in the year ahead, the smallest proportion ever recorded. Just 11% of all households expected inflation-adjusted income gains during the year ahead, barely above the all-time low of 8% in 1980. The largest declines were in prospects for the economy. The proportion of consumers who expected the economy to improve during the year ahead dropped to 21% in March from 40% in February, the largest one-month decline ever recorded in the history of
the surveys. What was the greatest concern for consumers about the slowdown in the pace of economic growth
was that they no longer anticipated the unemployment rate to decline.
Reuters) - Dallas Federal Reserve Bank President Richard Fisher said on Friday there were signs that liquidity was not just abundant, but excessive in the United States.
"Today we have abundant liquidity and the cost of money is zero," he said, adding that no amount of policy accommodation or new accommodation would solve the U.S. economy's problems.
"Today we have abundant liquidity and the cost of money is zero."
"We did our job as a central bank, we may have done too much," he told an event on 'Which way for the U.S. economy', organized by the Bruegel institute in Brussels. "We will no longer press on the monetary pedal."
Fisher is regarded by economists as one of the most hawkish policymakers at the U.S. central bank.
The lows are higher and the highs are lower for both MBS and Treasuries ahead of the 9:55am Consumer Sentiment data. FNCL 4.5's are up 3 ticks on the day now at 101-29 and 10yr notes 2 bps better at 3.3868. Both sides of the market got supportive bounces at or near yesterday's weak points, but conversely have shied away from breaking bullishly past the strong ones...
Following the 8:30am economic data, bonds are slightly weaker, but have not yet crossed over yesterday's worst levels. Even if they had, we're not sure how significant that would be considering that volume is quite low. Hourly totals are about HALF of yesterday's levels for both the 7-8am hour and the 8am-9am hour (projected, based on the first 50 minutes). 10yr yields are currently at 3.403 after getting as high as the 3.41's yesterday. FNCL 4.5's are down to 101-27, just over 3 ticks from this morning's highs, but still 1 tick improved on the day.
* LOCKHART SAYS SELF-REINFORCING VIRTUAL CIRCLE OF FINAL DEMAND IS INCREASINGLY BECOMING ESTABLISHED * LOCKHART: WOULD SUPPORT CHANGE IN POLICY IF LOW INFLATION OBJECTIVE APPEARS AT RISK, DOES NOT SEEM TO BE THE CASE NOW * LOCKHART SAYS INTERPRETS FED PRICE STABILITY MANDATE AS INCLUDING FOOD AND ENERGY COSTS *** LOCKHART SAYS SHARP RECENT DECLINE IN JOBLESS RATE "NOT ALL POSITIVE," SUGGESTS DISCOURAGED WORKERS LEAVING WORKFORCE
RTRS-US Q4 CORPORATE PROFITS AFTER TAX +3.3 PCT (CONSENSUS +3.2 PCT), VS Q3 +0.2 PCT (PREV +0.2 PCT)
RTRS-US 2010 CORPORATE PROFITS +20.4 PCT, LARGEST ANNUAL RISE SINCE 2004 (+28.2 PCT), VS 2009 +5.1 PCT. (BEA) - Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $38.2 billion in the fourth quarter, compared with an increase of $26.0 billion in the third quarter. Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- increased $36.9 billion in the
fourth quarter, in contrast to a decrease of $68.4 billion in the third. Taxes on corporate income decreased $1.3 billion in the fourth quarter, in contrast to an increase of $23.8 billion in the third. Profits after tax with inventory valuation and capital consumption adjustments increased $39.5 billion in the fourth quarter, compared with an increase of $2.2 billion in
the third. Dividends increased $8.9 billion, compared with an increase of $8.1 billion; current-production undistributed profits increased $30.6 billion, in contrast to a decrease of $5.9 billion. Domestic profits of financial corporations increased $57.7 billion in the fourth quarter, compared
with an increase of $34.6 billion in the third. Domestic profits of nonfinancial corporations decreased $10.1 billion in the fourth quarter, in contrast to an increase of $0.3 billion in the third. In the fourth quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real gross value added decreased. The decrease in unit profits reflected a decrease in unit prices that more than
offset a slight decrease in unit labor costs. Unit nonlabor costs were unchanged.
RTRS-US FINAL Q4 GDP +3.1 PCT (CONSENSUS +3.0 PCT), PREV +2.8 PCT; FINAL SALES +6.7 PCT (CONS +6.7 PCT), PREV +6.7 PCT. (BEA) - Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.1 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent. The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent. The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment and state and local government, spending. Imports, which are a subtraction in the calculation of GDP, decreased. The fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were
partly offset by downturns in private inventory investment, in federal government spending, and in state and local government spending, and a deceleration in nonresidential fixed investment. Final sales of computers added 0.35 percentage point to the fourth-quarter change in real GDP after adding 0.29 percentage point to the third-quarter change. Motor vehicle output subtracted 0.27 percentage point from the fourth-quarter change in real GDP after adding 0.49 percentage point to the third-quarter change.
Good Morning. The benchmark 10-year note traded off yesterday's yield highs last night in below average volume. 10s are currently +6/32 at 101-31+ yielding 3.387% after briefly breaching 3.40% support yesterday afternoon. The FNCL 4.5 is +4/32 at 101-29. The secondary market current coupon is -1.5bps at 4.154%. Yield spreads are slightly wider on the open. Rates are lower even as global equity markets gain ground. The NIKKEI was up 1.07%. The SHANGHAI closed 1.06% better. Ahead of the third revision to Q4 2010 GDP numbers, S&P fuures are +2.75 at 1308.25. The dollar index is +0.17% at 75.788. Front month NYMEX crude is basically flat at $105.63. And Gold is 0.43% higher at 1435.45.
(Reuters) - European leaders gave themselves until June to finalize an increase in their temporary bailout facility at a summit, failing to deliver the broad package they had promised to resolve their debt crisis.
Concern about Portugal, whose premier quit after austerity measures aimed at avoiding a bailout were thrown out by its parliament, dominated the meeting even if leaders chose not to discuss it openly.
The heads of government also extended the schedule for paying into a permanent rescue fund to be set up from mid-2013, giving themselves five years to provide capital of 80 billion euros, rather than doing it over a shorter period in bigger installments.
That was a concession to German Chancellor Angela Merkel, who had balked at the previous funding plan for the European Stability Mechanism (ESM) because it gave her less room to cut taxes before the next federal election in 2013.
European officials have said the fund will have a triple-A rating despite the longer funding timetable.
Featured Market Discussion
Adam Quinones : "no way S&Ps hold this strength into the weekend."
Adam Quinones : "youre seeing it in TSYs and related markets"
Adam Quinones : ""Originators peeled off 4.5s and 4.0s." = buying back hedges/covering short positions"
Adam Quinones : "see my micropost last night "CLOSING MARKS""
Matthew Graham : "and as I've said 14000 times in the past 3 years, my OPINION is that it's VERY likely much less scary than the alternative"
Matthew Graham : "it is VERY scary"
Matthew Graham : "Hey Vic, AQ and I are going to do a little deeper digging on sector breakdowns of corp profits, which should get to the heart of your previous question. At first blush, I'd guess that if my comments relating to borrow short, lend long are indeed the main contribution to the report, then the institutions driving the report's headline higher are not in much of a position to dictate consumer prices as much as they are lending rates, if you know what I mean."
Gus Floropoulos : "and with the govies economic woes both local, state, and fed...its scary"
Gus Floropoulos : "i guess ur right, but it seems to be a fake recovery....not organic"
Matthew Graham : "I think a 2SD+ event in the 955 data could get us to 3.30 only. a 1SD+ event = 3.36. anything less and I'm out of smart-sounding guesses"
Scott Valins : "does a weak consumer confidence number move this market or is it snoozing into the weekend?"
Matthew Graham : "with QE's, free short term money and and a yield curve about as steep as it's ever been, corporate profits are expected to be boomy. i don't think anyone really cares."
Victor Burek : "doesnt the corporate profits show they have room to absorb the higher prices"
Matthew Graham : "and then corp profits Rippy... well, that's kinda like a "no duh" headline I think..."
Matthew Graham : "just a Q4 revision, so non-event really"
Matthew Graham : "i'm thinkin' you're right"
Robert Rippy : "Now that you mentioin it MG, that was 3 months ago."
Matthew Graham : "this was for Q4-2010, was it not?"
Gus Floropoulos : "when the news hits the wire....its just too late"
Gus Floropoulos : "Bobby, buy the rumor sell the news"
Robert Rippy : "MG, I thought I reached the point that I understood a little about how the market was supposed to react to the financial news. Aren't the GDP and Corporate Profits good economic news? If so, shouldn't that cause the bond market to go down and not up?"
Matthew Graham : "that was the single best line of fed-speak recap i've seen all year"
Matthew Graham : "yeah AQ!"
Adam Quinones : "Lockhart just hit the nail on the head."
Matthew Graham : "or: Today 06:16 - LOCKHART SAYS ONE REASON NOT WORRIED ABOUT INFLATION IS THAT WAGE GROWTH HAS BEEN WEAK "
Matthew Graham : "so far, has been ideal as far as back-ups go "
Matthew Graham : "totally agreed on healthy back up AQ"
Adam Quinones : "Gotta see a turnaround soon though bc techs are curling against us "
Adam Quinones : "this back up is very healthy though. A cleansing of short positions is needed to break 3.18% resistance."
Adam Quinones : "this happened last year. It led me to utter the infamous words "I dont care about Greece anymore"...and then BOOOM. All hell break loose."
Matthew Graham : "and yes Chris, it makes AQ and I a bit nervous as well"
Christopher Stevens : "Boring makes me nervous right now. "
Ira Selwin : "markets have been extremely boring this week. Either that or we were just spoiled from the past few months"
Adam Quinones : "so the market is sleeping still. everyone be quiet. do not disturb"
Matthew Graham : "corp profits largest annual rise since 2004"
Matthew Graham : "excluding autos +3.5 vs 3.2 consensus"
Victor Burek : "pce lower"
Victor Burek : "3.1"
B-C : "i say GDP 2.2"
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