This morning Italian 10yr bonds rose at an auction of $11.8 billion dollars of debt. The spread between Italian Bonds and German Bunds is around 490 bps in early morning trading. Also worth mentioning- Spanish spreads are down to 311bps.
Markets are down, with the S&P 500 -0.57% (9am CST), the Euro Stoxx 50 -0.46%, and the Nikkei 225 closed down -0.20%. A surge in the ECB’s balance sheet to a record high has highlighted the growing risks in Europe, and threatens to snap a 5-day rally in the S&P 500. Lending to euro-area banks jumped $280 billion dollars (€214), to €879 billion in the week ended Dec. 23. Its balance sheet increased €239 billion euros to €2.73 Trillion euros.
U.S. 10yr treasuries are currently testing resistance at 1.968%, and the BOFA/Merrill Lynch MOVE Index, an indication of treasury market volatility, has increased +8.72% to 94.80 from its 12/15 low of 85.43.
Commodities are higher, with the S&P GSCI Commodities Index up +0.68% led by price advances in agriculture and energy.
U.S. credit markets continue to tighten- with USD LIBOR/OIS up to 49 bps, the 10Y 3M yield curve spread at 155 bps, and the BAA premium to treasuries at 336bps. The U.S. LIBOR/OIS spread is up +299.13% since its 8/1/11 low of 12.3 bps.
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This morning the S&P 500 is little changed after economic data came out showing a drop in U.S. home prices, and investors are obviously still concerned about the European Debt Crisis. Overseas, the Nikkei 225 closed down -0.46%, and the Euro Stoxx 50 is almost unchanged as of 11am CST. U.S. 10Y treasury yields rose 18 bps last week and now trade around 2.014% YTM. Commodities are slightly up, with the S&P GSCI commodity index up +0.68% on the day.
Obama is set to announce his nominations for two vacancies on the Federal Reserve Board tomorrow according to a report from the WSJ. He will choose Harvard University finance professor Jeffrey Stein and Jerome Powell, who was undersecretary of the Treasury for domestic finance in the early 1990s.
Tomorrow’s economic line-up includes Jobless Claims, the Chicago Purchasing Manager data, and Pending Home Sales.
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The ECB loaned 523 euro area banks 489B Euros ($645B), almost double the median estimate of 293B Euros from a Bloomberg survey. The ECB also loaned $33B for 14 days in a dollar offering, up from $5.1B just a week ago. While the 489B euro take up shows banks’ “liquidity needs are being amply met,” says Jonathan Loynes, chief European economist at Capital Economics, he remains skeptical it will ease the sovereign debt crisis.
MBA Mortgage applications for the period ending Dec. 16 came in at -2.6% versus a 4.1% estimate. Although this indicator is volatile, it indicates purchases and refinancing have slowed- proving that the lowest borrowing costs on record are not enough to spur demand in the housing markets.
The Bank of Japan (BOJ) downgraded their outlook of the economy for the second month in a row, but chose not to boost monetary stimulus- citing easy domestic financial conditions. Improvement in business sentiment has been sluggish, and exports & production have remained “more or less flat.”
At 7:50am CST, S&P futures were down -0.138%, the Euro Stoxx 50 is down -0.62%, and the Nikkei 225 has closed up +1.48%.
I sure wish politicians in Europe (heck- here at home too) would pay attention to the quote I’m using this morning. Have a great day folks- thanks for reading.
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