Market commentary

Fed Chairman Bernanke pulled the rug out from under the bond market on Friday during a speech at the Jackson Hole monetary symposium. Bernanke was more upbeat than many expected him to be, and his explanation of the Fed’s decision to re-invest cash flows from the Fed’s MBS portfolio told us the market had probably over-reacted. A second round a quantitative easing is further away than anticipated so rush into the U.S. Treasury market was a bit over done. Expect to see more volatility this week as a result, all leading up to Friday’s important release of nonfarm payrolls.

This morning’s release of Personal Income and Spending were largely in line with expectations. Spending was, however, up slightly which was seen in Friday’s GDP release. Inflation, as measured by Core PCE, was in line with expectations as well and reflected only a minor up tick in prices from the previous month – not nearly enough to signal a shift in inflation expectations.

U.S. Treasury prices are recovering from Friday’s sell off and mortgage prices are improved by approximately .25% .