Shutdown! Not much of a surprise but the 10 yr and MBS prices weaker to start. Not too bad early, the 10 down just 7/32 (22 bp) to 2.64% +3 bps at 9:00; 30 yr MBS price -15 bps. The government shutdown was widely expected with Republicans pushing on a string trying to defund or delay ObamaCare, something that was not going to happen yet they continued, knowing the President could not back away from his main accomplishment as president. Yesterday the stock indexes were weaker, this morning the market is opening better. The Senate rejected the House measure to delay ObamaCare. They said they wouldn’t enter negotiations until the House agreed to reopen the government by extending its funding for several weeks and without requiring changes to the new federal health law. The last shutdown was 17 years ago. There have been 17 government shutdowns since 1976, with five of them occurring within three months of each other.
In two weeks Treasury will not be able to pay interest on US debt unless the debt ceiling is increased. Will Republicans continue to hold fast and let the US default on our debt payments? Let’s hope not. At the moment there is no willingness from either side of the isle to cooperate. The government shutdown is obviously not good, but the inability to increase the federal debt ceiling will make the shutdown look rather minor; US interest rates will spike higher, S&P will likely cut US debt ratings, and US stock markets will suffer huge losses. Not saying it will happen, but the results of a default will be felt around the world.
This week is employment week if we actually get the BLS report on Friday as scheduled. If the government remains closed the employment data will be delayed until next week, or whenever the shutdown ends. Even if the shutdown is over can the BLS get the data together quick enough to report it Friday; and if on Friday will the data be accurate. In the meantime tomorrow ADP will report its non-farm jobs report.
The DJIA opened +8 at 9:30, NADSAQ +7, S&P +2; 10 yr note at 2.63% down 2 bps frm early this morning and 30 yr MBS price -9 bps on conventionals and -19 bps on governments.
So far today Ford’s Sept sales up 5.0% and Chrysler up 1.0%; the rest will follow through the day. Auto and truck sales in Sept will be less than August as there were two less selling days in the month. No reaction is expected on the data.
One economic report at 10:00; the Sept ISM manufacturing index was expected at 55.1 frm 55.7 in August, as reported the index jumped to 56.2. New orders component did decline, frm 63.2 to 60.5 but still at high index level; the employment component increased to 55.4 frm 53.4. The overall index is the highest since April 2011. August construction spending delayed because of the shutdown .
The President is due to speak at 12:25 this afternoon; not a mystery as to what he will say.
The technical situations on the 10 yr and 4.0 Oct FNMA are failing at key resistance levels. The 10 has resistance at 2.60% while the Fannie has price resistance at 104.89. Both resistance levels have been tested and both have held any additional improvement. Still both are bullish and will say that way as long as the 10 does not break above 2.72% and the Fannie at 104.00.
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