Tuesday, July 5, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Do you recall I stated that we might be looking for 1.25% for the 10yr note? It may get there a lot quicker than I thought. The British currency falling, Italy's banks may be in trouble with 17% of the banks' loans in default. Most of the Italian bank debt is held by mom and pops, the next country to have a serious problem? The pound fell to its weakest level since 2013 against the euro and the yen rose against all of its 31 major counterparts.
The 10yr note yield has dropped to 1.37% at 10:00AM this morning as money continues to move to safety. The MBSs are heading with the rate as it is a positive 25BPS. The 10 note yield has hit a 63 year low this morning, tying the low in 2013. Banks and financial stocks leading the way lower, it is sinking in that interest rates are not going to increase for a long time, hurting banks' earnings. The ECB's Mario Draghi talking about massive reforms in the EU - in the UK leaders are quitting as fast as possible. The German 10yr bund now -0.16%.
While most of the focus is centered on Europe and the leave vote, on Friday US June employment report is the dominant domestic report. In May markets were shocked when the BLS reported non-farm jobs increased just 38K, the current estimate for June +180K, also look for upward revision to the May jobs. Prior to Friday's job report tomorrow the minutes from the June FOMC meeting will be released.
May factory orders came in as expected. The final durable goods orders for May -2.3%, ex transportation -0.3%. Doesn't look promising but investors do not want facts these days, they want more profits. There is coming a day when investors' fingers are going to get burned playing with fire.
Currently, with rates heading down, it may be the time to sit back and let the market run - but stay close at it can turn quickly.
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