Morning Report – Sovereign Debt Bubble? 6/26/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1949.0 -0.4 -0.02%
Eurostoxx Index 3253.1 0.7 0.02%
Oil (WTI) 106.2 -0.3 -0.27%
LIBOR 0.234 0.000 0.11%
US Dollar Index (DXY) 80.23 0.007 0.01%
10 Year Govt Bond Yield 2.54% -0.02%
Current Coupon Ginnie Mae TBA 106.5 0.0
Current Coupon Fannie Mae TBA 105.9 0.1
BankRate 30 Year Fixed Rate Mortgage 4.16

 

Stocks are flat this morning after a disappointing personal spending report. Bonds and MBS are up
Personal Incomes rose .4% in May, in line with expectations, but spending came in at .2%, lower than the .4% estimate. Services spending dropped, while spending on durables increased. The PCE core rate (the Fed’s preferred measure of inflation) came in at 1.5%, lower than the Fed’s target rate
Initial Jobless Claims came in at 312k, more or less in line with expectations.
Note that the Markit PMI data came out yesterday and both the composite and the services numbers were at post-recession highs. Markit is forecasting a payrolls number next week of 250k, which is way above the ADP forecast of 208k and the Street forecast of 209k.
The war on the financial system continues. NY AG Eric Schneiderman just announced he is suing Barclay’s. Remember, the road to the NY Governor’s Mansion is paved with Wall Street lawsuits. Separately, Obama nominated the woman who railroaded Arthur Anderson into a guilty plea (only to have it overturned by the Supreme Court) to head the Criminal Division at DOJ. She has a fundamentally dim view of business in general and Wall Street in particular – considers us the wise guys of Wall Street, deserving brutal prosecutorial tactics. And the left wonders why credit is so tight…
Is the worldwide unprecedented easing by central banks causing a bubble in sovereign debt? Wilbur Ross and Steven Roach think so. Remember the PIIGS (Portugal, Ireland, Italy, Greece, Spain) problem children of the EU? Their 10 year bonds are yielding: Portugal: 2.84%, Greece 5.85%, Portugal, 3.5%, Spain 2.64%, Ireland, 2.34%. Irish 10 year sovereigns are trading at a lower yield than US treasuries. Two years ago, they were yielding 14%. Memories are short..
On the plus side, mortgage rates continue to fall, which is helping drive business. Chart: Bankrate 30 year fixed rate mortgage:

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