Suprise! We have a Band Aid...

Mortgage bond prices remain sharply lower pushing rates higher following a surprise euro zone deal in the early hours Friday morning.

Euro leaders agreed to a plan to help lower borrowing costs which allows rescue funds to be used for sovereign debt purchases without cutting more spending. This was a sharp contrast to Germany's demands that additional assistance must come with additional cuts. Market participants were caught by surprise as no deal was expected from the meeting. Unfortunately in the short term, this lowers borrowing costs for troubled nations such as Italy and Spain. This also reverses some of the flight to quality buying of US debt instruments, which is what we are seeing this morning. However, this doesn't solve the debt problems the euro zone faces and more volatility is expected. We call this a BANDAID and only a short term move. Much bigger problems remain for that region.

Personal income up 0.2%, spending unchanged, both exactly as expected. Michigan consumer sentiment came in at 67.8 versus the expected 69 mark. The data is being heavily overshadowed by the euro zone developments.

Mortgage Bond Prices Slightly Higher

Mortgage bond prices opened slightly positive this morning helping add to the small gains from yesterday afternoon which is seeing rates improve.

Weekly jobless claims @ 386k, expected 385k, Q1 GDP final revision up 1.9% as expected.

News out of the euro zone countered yesterday's remarks by German Chancellor Merkel which rejected a proposal to "share" the euro zone debt through bonds. This morning German Finance Minister Wolfgang Schäuble said ""We are willing to go as far as we need to in order to get a sustainable agreement in Europe." Round and round we go.... expect more up and down trading tied to Europe as their situation remains in flux.

A wild first half, Whats next?

Mortgage bond prices remain slightly weaker this morning following the data.

Durable goods orders rose 1.1%, higher than the expected 0.4% increase. However****, ex-transportation figures rose 0.4%, lower than the expected 0.7% increase. Overall the data was mixed and the market swung back and forth as it digested it. At the open, the initial reaction was slightly negative though only within a narrow range. Stocks seemed to like the data with the DOW up 47 points at 10am et PRICING.

News out of the euro zone was good for US debt as German Chancellor Merkel rejected a proposal to "share" the euro zone debt through bonds. Expect more up and down trading tied to Europe as their situation remains in flux.

We have a 5Y Treasury note auction this afternoon.

S & P TO 1500?

Mortgage bond prices opened slightly weaker this morning erasing some of the small positive gains seen at the close yeaterday. News out of the euro zone was positive overnight which reverses some of the flight to quality buying of US debt that helped rates yesterday.

A German consumer sentiment index was higher than expected. There are fears that the euro debt crisis will eventually boil over into the German economy. So far higher wages and increased spending from consumers shows the German economy remains fundamentally positive. How long Germany can hold strong amid all the turmoil surrounding it is debated.

We have consumer confidence data @ 10am et.

We Are Living in a Modern Day Depression: David Rosenberg The 'Modern Day Depression’ Is Already Here

Mortgage bond prices opened higher this morning helping knock out the small losses from Friday afternoon. Rates are being helped by continued turmoil in the euro zone.

Spain asks euro zone for $77b to recapitalize banks. This rekindles the flight to quality buying of US debt instruments such as mortgage backed securities.

We have new home sales data later this morning before pricing is set. This week has several important data releases including consumer confidence, durable goods, personal income and outlays.

Moody’s Investors Service downgraded multiple large financial institutions and banks. In February the company said it was going to examine banks with a global reach. Five of the six largest US banks had their ratings downgraded, which could effect borrowing costs and reserve requirements.

What will Mr. Bernake do?

Mortgage bond prices opened lower Wednesday morning erasing the small gains seen yesterday afternoon. Rates are under pressure from positive stock futures, an indication the Dow will open higher.

With no news set for release this morning traders are waiting for stocks to begin trade at 9:30 am ET. At the opening of the bond market at 8:30 am ET Dow futures were up 97.

This afternoon promises to be interesting. The Federal Open Market Committee concludes its two-day meeting. Any changes will be announced at 12:30 p.m. ET, with Fed Chairman Ben Bernanke scheduled to convene a news conference at 2:15 p.m. ET. Mr. Bernanke has three options; do nothing, extend Operation Twist or announce another round of quantitative easing. Economic conditions have deteriorated since the Fed last met. This puts pressure on the Fed to do something. Stocks are betting on QE3. Be careful this afternoon. If Mr. Bernanke were to drop a “tape bomb” during the press conference the markets would become volatile quickly.

Central banks around the globe are under pressure to act as economic activity slows. The Bank of England Monetary Policy Committee is under pressure to extend their current quantitative easing program. The bank of Japan stands ready to act if the situation in Europe continues to decline.

QE3 coming to a rate sheet near you?

Mortgage bond prices opened near unchanged Tuesday morning holding rates steady from pricing Monday.

In news released at the open, housing starts printed at 708K. Expectations were for 725K starts. That data had little effect on trade.

With no more news set for release today traders are now waiting for stocks to begin trade at 9:30 am ET. Currently Dow futures indicate the index will open slightly higher.

Trade in Europe was quiet, a welcome relief. The ZEW Economic Sentiment report shocked to the downside with both the Euro zone and Germany printing well below expectations. Recession pressures are building in Europe and around the world. Greece looks to form a collation government as early as today. That would be good news for the entire world.

The Fed begins their two-day meeting today and will announce changes to interest rate policy tomorrow afternoon. Many are looking for the Fed to ease further. At this juncture in history, the majority of the world’s major economies are looking for support from central bankers. Global growth is slowing and inflation pressures are in check. Who knows, is QE3 coming to a ratesheet near you?

Greek election victor calls for broad coalition Europe Hints at More Time for Greece

Mortgage bond prices opened higher Monday morning adding to the gains seen Friday afternoon. Rates are finding support from weak stock futures, an indication the Dow will open lower.

The much anticipated Greek election is finally over. The pro-bailout group, The New Democracy’s won the election helping calm global worries. Stocks shot higher in Asia and Europe on the hopes Greece will be able to form a collation government. This remains to be seen. If Greece is unable to do so another election will be held. This story is far from over.

Spain is back in the crosshair of the bond vigilantes. Yields on the beleaguered country’s 10-year bond shot to 7.15% before backing off. Yields in Italy are also under pressure. 7% on 10-year money is considered unsustainable and has driven other countries into a full-blown bailout. The bottom line is Europe remains a mess and this weekend’s events only kicked the can further down the road. Europe needs to make some bold moves quickly to keep the union together.

With no data set for release today traders are waiting for stocks to begin trade at 9:30 am ET to help gauge interest rate direction. At the bond market opening the Dow futures were down 44.

Greek Elections this weekend

Mortgage bond prices are positive at the open helping recover the small losses from yesterday afternoon.

The entire world is on hold waiting for the outcome of the Greek elections this weekend. The vote may well dictate whether or not Greece stays in the euro. The ramifications of the vote, no matter the result, still remain very uncertain. Even if Greece stays in the euro zone how does it resolve all the problems it faces with massive debt that cannot be repaid?

We have industrial production, capacity use data, and Michigan consumer sentiment data later this morning.

EU Countries Across World Gird for Greece Turmoil

Mortgage bond prices opened negative on the day despite bond friendly data. The initial reaction was positive but things quickly swung the other way. Fortunately we only erased the gains from yesterday afternoon.

Weekly jobless claims @ 386k, expected @ 375k. The consumer price index fell 0.3%, expected down 0.2%, The core, which excludes volatile food and energy prices, rose 0.2% as expected. The data continues to show economic weakness with little or no price pressures which generally bodes well for low rates.

We still have a 30Y auction this afternoon.

Spain saw government debt ratings downgraded by Moody's overnight. A debt rating downgrade using means higher rates for them which is the last thing they need as unemployment is already very high and their borrowing costs already show increased yields. However, other euro zone bonds are showing lower yields this morning on increased demand such as the UK, Germany, and Italy.

Mortgage bond prices opened near unchanged

Mortgage bond prices opened near unchanged failing to erase the small losses from yesterday afternoon.

The data this morning didn't move the market much.

Retail sales down 0.2% as expected , PPI down 1%, expected down 0.6%, Core up 0.2% as expected.

We still have a 10Y auction this afternoon.

US debt across the board(Treasuries, MBS, etc...) is a bit weaker this morning as a euro zone industrial production figure beat estimates slightly. The figure was still negative but it seems like any good news in the euro zone is received well as of late.

Traders work on the floor of the New York Stock Exchange Futures Mixed Higher as Volatility Swirls

Mortgage bond prices opened weaker this morning erasing most of the gains from yesterday afternoon. There was no data this morning. We have a 3Y note auction this afternoon. News out of Europe overnight is very tame. Nothing moving the markets much and things remain shockingly quiet. This is a stark contrast to the volatility out of the euro zone as of late. Stock futures are sharply higher. Stocks and bonds often trade inversely, though not always the case. Spains "bailout" (THOUGH commentators are careful not to use that word, but let's call it what it is) still is factoring into trade. The eurozone stepped in and helped Spain's banks with $125 billion of assistance. The last thing Europe needs is additional defaults. Greece is already rumored to be leaving the euro, they can't add Spain to the fears without dire consequences. In the short term this rescue package helps, in the long term things still look dire. Spain is now the fourth on the list of countries the eurozone have bailed out....Portugal, Greece, Ireland. Italy is also in bad shape. France isn't without woes. Some analysts this morning say the recent steps are only a bandaid and we will revisit Spain's woes again in 30 days. We shall see. This morning represents a forward drop for MBS traders. The front month for delivery has rolled to July. This is a technical aspect of the bond market and has no real impact on daily rates. Secondary managers have been pricing into the July coupon for several weeks. What is most noticeable is the drop in bond prices as forward months fall approximately 8/32s to 10/32s. />

Traders work on the floor of the New York Stock Exchange Futures Gain on Spain Aid Deal

Mortgage bond prices opened slightly positive on the day but failed to erase the losses from Friday afternoon which leaves us worse since PRICING Friday morning. There is no data today, however this week brings 3/10/30-year auctions, consumer and producer price index data and retail sales. The eurozone stepped in and helped Spain's banks with $125 billion of assistance. The last thing Europe needs is additional defaults. Greece is already rumored to be leaving the euro, they can't add Spain to the fears without dire consequences. In the short term this rescue package helps, in the long term things still look dire. Spain is now the fourth on the list of countries the eurozone have bailed out....Portugal, Greece, Ireland. Italy is also in bad shape. France isn't without woes.

No Rest for the Weary

Mortgage bond prices opened higher Friday morning adding to the gains seen Thursday afternoon. Rates are finding support from weak stocks. Equity markets in Europe and Asia are lower and the selling pressure appears to be spilling over into the US markets. At the bond market opening Dow futures were lower by 51-points. In news released this morning, the trade deficit stood at $50.1B. Analysts were expecting a deficit of $49.7B. That data has little effect on trade. With no more data set for release today traders are waiting for stocks to begin trade at 9:30 am ET. No rest for the weary. It is going to a busy weekend in Euro Land. Saturday morning senior euro zone officials and European Union finance ministers will discuss how to provide support to Spain. A euro zone official described the situation in Spain as “quite bad”. The IMF and two outside companies are scrutinizing data from Spain in an attempt to find out how deep the hole really is. It is unclear how officials plan to provide the aid and how much is needed. Spanish banks have a similar issue faced here in the US. In the boom times mortgages were easy to obtain and housing prices were escalating quickly. We know how that ended. As the amount of foreclosures grow, housing prices come under pressure which effects the value of the loans (both performing and non-performing) held by the banks. As the value of the loans (an asset) falls, capital ratios are reduced requiring the banks to raise money. To raise money banks sell holdings of high grade performing loans, which have the most value. This is another one of those vicious cycles.