Market commentary

There was blood in the streets for Treasuries last even though the Fed made its first QE2 purchases, $7.229 billion of 4- to 5.5-year maturities. Despite the Fed buying, Treasuries are got shellacked including the maturities the Fed bought. This is a strong signal that the effects of QE2 were already priced into the market. This will be the part of QE2 that is disconcerting for the Fed. If rates spike higher on the inflation concerns, the flow of credit becomes more expensive and not as simulative to the economy.

This week’s economic calendar is full of significant releases beginning with this morning’s October retail sales report. Sales rose much sharper-than-expected, led by auto sales. Excluding autos, October retail sales rose an as-expected 0.4%. In manufacturing, however, the news was not so good. The NY Feed’s Empire Manufacturing survey fell to -11.14 in November, its lowest level since April 2009. The remainder of the week will give us inflation data from the Producer and Consumer Price Indices, Housing Starts and Leading Economic Indicators.
Mortgage prices are another 20 bps to 30 bps worse in price from the market close on Friday, and the yield on the 10 year note has spike to 2.86%.