MBS OPEN: China Raises Reserve Requirement. Retail Sales Better
Mortgage rates were mixed yesterday, some lenders were better, others were worse.
The FN 4.0 ended the session +0-03 at 97-19 while the FN 4.5 went out the door +0-03 at 100-21 yielding 4.43%. The secondary market current coupon was 4.42%. The 10yr TSY note was -0-01 at 99-06 yielding 3.721% and the 2s/10s yield curve was 4 bps steeper to 285bps.
Stock markets continued to sort through EU political rhetoric regarding the fate of Greece. No "official" details were offered and no specific move was made. This is what I wrote yesterday...
Plain and Simple: although nothing has been done to "officially" rescue Greece yet, support is "officially" mobilizing in the event an emergency effort is "officially" needed. This "officialness" is intended to serve as a backstop for investor confidence and help avoid the further spreading of panic.
Markets are reacting to news out of China this morning. Here are the details directly from the People's Bank of China:
The WSJ translates:
The People's Bank of China said it will raise the reserve-requirement ratio for banks by half a percentage point from Feb. 25, for the second increase this year. That will make the standard for major banks to keep 16.5% of their deposits on reserve, though rates can vary by bank. The move comes exactly a month after the central bank's first increase in the ratio this year, and after authorities have repeatedly leaned on banks to restrain their lending.
QING WANG, ECONOMIST WITH MORGAN STANLEY IN HONG KONG, IN A NOTE TO CLIENTS:
"The RRR hike is a conventional tool that the PBoC relies on to sterilize excess liquidity created as a result of persistent FX inflows. FX inflows must have been persistently strong since January. "Why now? Typically lots of liquidity is injected into the market before Chinese New Year holiday (which is tomorrow), and that liquidity needs to be withdrawn after the holiday somehow. And an RRR hike is the most cost effective way of doing so. We would like to reiterate this should not be viewed as outright tightening. The market should get used to it."
The "rate sheet influential" end of the bond market benefited from this move, stocks did not.
Retail Sales, which were supposed to be released yesterday but were not because of 4 feet of snow, came out at 830AM. Overall Retail Sales were up 0.5% in January, this is better than expected (consensus was +0.3%). Excluding autos, retail sales were up 0.6%. Looks like crappy weather affected more than just the timing of the data release...El Nino kept car buyers parked in January.
A decline in building material spending was a major source of weakness. I would say furniture sales too but their overall $ contribution is minimal. Electronics sales picked up 1.2%, same story as furniture on a $ basis though. Check out the rise in sporting goods sales....PLAYOFFS?
The 3.625 coupon bearing 10 year Treasury note is +0-11 at 99-17 yielding 3.68%. We are back in the confines of the 2010 range. 3.68% is a key pivot point...
The FN 4.0 is +0-10 at 97-30 4.198% and the FN 4.5 is +0-07 at 100-29 yielding 4.401%. The secondary market current coupon is 4.381%.
A three day weekend is ahead. This means traders will be doing position squaring a bit earlier than usual (getting flat) which implies the market could experience a lack of liquidity later in the day. Stay on your toes, price action could get choppy. (Hopefully in a good way for bonds).
Rate sheet rebate should be marginally better...consumer sentiment at 955am