Current Rate Position: Continue Floating
Stocks are lower and Mortgage Bonds are higher so far this morning. It’s another quiet news day, but the National Federation of Independent Business (NFIB) did report that optimism among small business owners decreased 1.6 points in June from 96.6 to 95.0. This was much lower than expectations, which were looking for 97.0. Out of the 10 components surveyed, the only two that were higher were plans to increase employment and current job openings. The biggest component that contributed to the pullback this month was expect economy to improve, which fell 10 points to -10.
CoreLogic released their National Foreclosure Report for May, and it showed that foreclosure inventory is down 37% from a year ago. Only 1.7% of all homes with a mortgage are in foreclosure compared to 2.6% last year. This is why appreciation is so important, it fixes everything. Additionally, only 4.4% of mortgages are now seriously delinquent for the first time in almost 6 years. Fewer mortgages in delinquency means that less are headed for foreclosure down the road.
Taking a look tomorrow the news calendar does heat up. One thing we will be looking at is the ECB rate decision. Their economy is struggling but the Euro is so high that it makes it difficult for exporters. There is a big call for the ECB to do something but they can’t because they don’t have a European Bond, they have all these different countries, so it’s a lot more challenging. They may take a page out of China’s book and make purchases of US Treasuries to help their currency weaken against the Dollar. That would be welcome news to us here because if they choose that path, it will help keep interest rates at better levels. We will also have a 10-year Treasury Note Auction at 1:00pm ET and the release of the Fed Minutes at 2:00pm ET.
Looking at the charts, Bonds are in a favorable position. The 10-year Treasury Note Yield formed a Bearish Engulfing Pattern Yesterday, which portends lower yields ahead. We are seeing Yields follow through to the downside today, and they are now battling support at their 25 and 50-day Moving Averages. Mortgage Bonds are nicely higher today after the Bullish Piercing Pattern formed.