Market commentary

Bond prices are lower this morning with the ten-year treasury’s price falling for the sixth straight day, pushing its yield up to nearly 2.70%. This is above the level at which it traded when Fed Chairman Bernanke spoke in Jackson Hole, WY about the options the Fed has to combat deflation and provide further "unconventional" accommodation. Expectations for QE2 have steadily built; however, this morning’s WSJ contains yet another article on the subject, saying the Fed "is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months." Such a move would fall on the light-end of market estimates, which will most likely push interest rates higher.
This morning it was reported durable goods orders for September rose 3.3%, beating estimates, but having little effect on the bond or stock markets.
Tuesday’s two-year auction found strong demand, and today, the Treasury will auction five-year notes. Mortgage pricing is .125% to .250% worse than Tuesday.

Market commentary

Low interest rates and declining home prices helped push existing home sales higher in September, for the second straight month. And for the first time ever, investors are paying the US Treasury for the privilege of buying US bonds---the 5 yr TIPS (Treasury Inflation Protected Securities) auction on Monday drew a yield of -.55%. This tells me investors are expecting the Fed will eventually be able to cause inflation, in a significant way.

Indeed, the markets have priced in at least $500 billion of additional asset purchases by the Fed, however, the bond market also seems tired of just hearing about the potential. The yield on the 10 year note rose to 2.59% Monday, and is currently trading at 2.60%.

Market commentary

Treasury prices are slightly improved early Monday morning with the yield on the 10 year note dropping from 2.55% to 2.54%. Fed Chairman Bernanke speaks at 8:30 AM, ET and existing home sales data will be released at 10:00 AM, ET. Keep in mind, the bond market is preparing for this week’s new supply as the U.S. Treasury will be issuing 2 yr, 5 yr and 7 yr notes.

Market commentary

Treasury prices fell on Thursday, pushing the yield on the 10 year note to 4.55%. With no data on the economic calendar for today, the bond market is preparing for next week’s new supply as the U.S. Treasury will be issuing 2 yr, 5 yr and 7 yr notes.

In addition to the continued release of third quarter earning, the markets will have data on existing and new home sales, consumer confidence, and the strength of the manufacturing sector.

Today, mortgage prices are worse by .125% to .250%.

Market commentary

This morning’s weekly jobless claims report essentially equaled expectations with new claims of 452,000 versus expectations of 455,000. The big news is the revision which pushed the prior week’s initial claims to 475,000. Wednesday’s release of the Feed’s Beige Book, prepared for the upcoming FOMC meeting, did not produce any surprises and did not alter expectations for QE2 of some sort.

Positive earnings announcements from McDonalds, Travelers, EBay, NetFlix and Amazon have stocks moving higher while bonds are trending lower. Mortgage prices are approximately .125% worse than Wednesday.

Market commentary

Stocks posted their biggest percentage losses in two months on Tuesday following a tightening move by the Peoples Bank of China which raised rates for the first time in three years. U.S. Treasuries and mortgage bonds benefited from stocks` weakness and continued expectations for low Fed-supported rates, with the five-year Treasury’s yield falling to a new record low of 1.10%.

This morning’s only economic release is the MBA mortgage applications index, which fell sharply in the most recent week with a major factor being the FHA’s increased fees which took effect with applications taken after October 4.
This afternoon, the Fed will release its Beige Book, prepared for the upcoming November 3 FOMC meeting. It could prove pivotal with division among Fed officials continuing about whether, when, and how to provide further accommodation

Market commentary

The Commerce Department reported housing starts increased slightly in September, however, building permits, a proxy for new construction decreased. It seems there is much uncertainty whether or not the housing market is stabilizing.

The U.S. Treasury market is trading flat from the close on Monday, however, stocks are trading lower as Bank of America announced a third quarter loss of $7.3 billion and China, in a surprise move, raised its benchmark lending rate—its version of the Fed funds rate.

Mortgage prices are steady from Monday’s rate sheet.

Market commentary

Treasury prices retreated on Friday, but have reversed course this morning after the Federal Reserve reported U.S. industrial production unexpectedly dropped in September by .02%. This is the first decline in this index in 8 months as U.S. companies had been rebuilding inventories and as overseas demand of U.S. goods had picked up.

Earnings news continues this week, with Citigroup announcing net income of $2.17 billion as the company reduced loan loss reserves from $11 billion to $7.66 billion. Tuesday we will see earnings from Bank of America and Wednesday Wells Fargo and US Bank report.

Market commentary

In the morning’s early releases, Core CPI came in at a year-over-year pace of 0.8%, the lowest level since 1961. Advanced retail sales, excluding autos, in August were revised higher to up 1.0% on strong back-to-school shopping but September’s figure only increased at a 0.4% pace.

Fed Chairman Bernanke was the center of attention for the markets today with a speech regarding monetary policy objectives. The Fed is clearly worried about a deflationary environment and Bernanke’s comments discussed the tools the Fed has at its disposal as well as the problems and unintended consequences of using those tools.

U.S. stock markets opened strong, buoyed by the data and Bernanke’s comments, while the treasury market retreated. The last piece of data for the day reversed the stock markets, as a measure of consumer confidence was reported lower than forecasted. While the stock markets reversed course, heading lower on the day, treasuries remain lower, with the yield on the 10 year note now standing at 2.53%. Mortgage prices are flat from the close on Thursday.

Market commentary

The treasury market and stock indices are flat this morning after early morning data that were offsetting. The Producer Price Index, a measure of inflation, rose 0.4%, a higher than expected increase, and typically not bond friendly. Offsetting the higher inflation data was news that weekly jobless claims rose to 462,000, indicating the weak labor market persists.

The 10 year note is stuck at 2.45% this morning while the DOW is lower by 7 points. Mortgage prices are slightly worse than where the market closed Wednesday.

Maarket commentary

JP Morgan Chase posted a 23% increase in quarterly profits; the first of the major banks to report third quarter results. U.S. equity markets are sharply higher on this positive news, while treasury prices are worsening.

The Fed minutes from September’s FOMC meeting showed a Fed divided over additional easing, but generally leaning in the direction of further action. The bond market has priced in another round of quantitative easing from the Fed, so any delay or additional dissent will cause interest rates to creep higher, as we saw Tuesday afternoon.

Finally, yesterday’s 3-year note auction left a bit to be desired as the indirect bid dropped to its lowest level in 2007. The indirect bid reflects foreign interest in the issue and could be problematic if demand weakens. Treasury will auction 10-year notes today and a repeat of yesterday’s weak auction could spook fixed income investors again.

Market commentary

The economic calendar is light today with the U.S. Treasury auctioning $32 billion in 3 year notes and at 1:00 PM, ET the minutes from the Fed’s September 21st meeting will be released. This meeting had the first discussions of QE2 and could provide some interesting color into what the various Fed officials are thinking.

Treasury and mortgage bond prices are slightly better today, with mortgages better by .125% to .250%.

Market commentary

Treasuries closed lower on Friday, and the bond market is closed today. The economic calendar is light the remainder of the week, except for Friday when we will see the Consumer Price Index and Retail Sales data for September. Also, remember the U.S. Treasury is auctioning 3 year notes, 10 year notes and 30 year bonds this week.

Market commentary

The U.S. economy lost 95,000 jobs last month versus the expectation of a loss of 5,000, reflecting the employment picture is weaker-than-expected Private payrolls were a bit better, increasing 64,000 in September (expected to be +75,000) and August’s figures were revised 27,000 higher. The pace of private job growth, however, has dropped from +117,000 in July to +93,000 in August to +64,000 in September. The government lost more jobs than expected; mostly census workers but some local and state government workers, and the unemployment rate remained unchanged at 9.6%.

According to a Bloomberg report, 41.8 million people in the U.S. are receiving food stamps, 13.5% of the population. Food stamps now account for 12% of all retail food and beverage sales, up from 6% three years ago. Mississippi, Tennessee, and Washington D.C. all have rates of use above 20%.

The bond market has improved slightly from the close on Thursday, and mortgage pricing is slightly better.

Remember, Monday is the Columbus Day holiday and will not count as a rescission day.

Market commentary

Initial jobless claims came in slightly better-than-expected at 445k this morning but remain in the 450k range that has come to define this recovery. Continuing claims rose slightly as unemployed persons find it difficult to obtain new work.
The growing consensus in the bond market is that more quantitative easing is imminent from the Fed, an idea clearly indicated in the rally we have seen in the 10 year note. Last Friday the 10 year closed at a yield of 2.51% and this morning is trading at 2.40%. A large part of this rally came after yesterday’s ADP report which pointed towards a weaker-than-expected payrolls report. Tomorrow’s payroll report is expected to reflect a slight loss of jobs in the overall economy, with a gain of 75,000 in private payrolls. The persistent weakness in the labor markets is very compelling to Fed policy makers, and this will be the last employment report before the Fed’s November meeting.
A couple of items to note: 1) We are coming up on a 3 day weekend, so volatility could be exaggerated after the early Friday morning release of the jobs data, and 2) next week the U.S. Treasury is auctioning an estimated $32 billion of 3 year notes, $21 billion of 10 year notes, and $13 billion of 30 year bonds.

Market commentary

Treasuries are in rally mode as the ADP employment report was released this morning showing a drop of 39k in jobs for the month of September. This report was expected to show an increase of 20k. In addition the Challenger job cuts report showed 37k job cuts announced in September, up 2.5k from July, most of which were seen in the West and Midwest.

The idea of the Fed implementing QE2 gained more traction yesterday when Chicago Fed Bank President Charles Evans said, "In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should.” He went on to say that he favors “much more [monetary] accommodation than we’ve put in place.”

Clearly today’s employment reports support the above statement from Chicago Fed President Evans, and the bond market is pricing in a weak number on Friday. Friday’s payroll data will need to be significantly worse than forecast for the bond market to maintain the rally. This could become a classic case of buy the rumor, sell the news.

Market commentary

Treasuries had a strong day yesterday and the 10-year is opening this morning at 2.45%, while the 2-year hit a new low and we are now sitting at 0.41%. Fed chairman Bernanke delivered comments yesterday that re-affirmed the market’s growing belief that he is leaning towards more quantitative easing. Answering a question about the effectiveness of additional QE at his speech yesterday in Rhode Island, Bernanke said “I do think that the additional purchases – although we don’t have precise numbers for how big the effects are – I do think they have the ability to ease financial conditions.” He also stated that it is “crucially important to put fiscal policy on a sustainable path” and that includes cutting our budget deficit. However, it would be more feasible to cut the deficit over the long-term than in the near-term. Translation: let’s stimulate the economy now and put in place some policies that will reduce the budget later.

Positive economic news came from the Institute for Supply Management as they reported their index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 53.2 from 51.5 in August.

The effect on the markets is a reversal for stocks as the DOW is currently higher by 120 points, while the bond market is flat from Monday’s close. Mortgage prices are slightly better, offering another good day to lock.

Market commentary

The bond market is "on alert for easing" according to this morning’s WSJ. As the FOMC (Fed) statements have said, consumer spending is being hindered by several variables but most importantly by the high rate of unemployment. This is why the labor statistics are so important at this juncture of the economic cycle. This week’s release of September’s non-farm payrolls will be the last payroll report before the November 2nd and 3rd Fed meeting. The recent jobless claims reports signal a slight improvement in the payroll data, but not enough improvement to change economists` perceptions of the strength of the labor market. Expectations are for total non-farm payrolls to improve from losing 54k jobs last in August to no jobs lost (no jobs gained) in September, while private payrolls are expected to increase from 67,000 to 77,000.
Helping bond prices today is the decline in U.S. stock markets, a result of analysts cutting the ratings on Microsoft and Alcoa. Mortgage prices have improved by approximately .250% from Friday.

Market commentary

Treasuries and mortgage bonds improved late Thursday afternoon and are flat this morning after absorbing a series of economic reports.

Manufacturing expanded in September at the slowest pace in 10 months, according to the Institute for Supply Management’s factory index which dropped to 54.4 from 56.3 in August.

Confidence among U.S. consumers declined less than forecast, as the Thomson Reuters/University of Michigan final index of consumer sentiment fell slightly to 68.2 from 68.9 in August.

Consumer spending in the U.S. rose more than forecast in August as incomes edged slightly higher. Wages and salaries increased 0.3% after a 0.4% increase the prior month, showing how the weak labor market is holding back paychecks.

All in all a mixed bag of reports indicating the U.S. economy is struggling to maintain positive growth.

Mortgage prices are better today by .125% to .250%.