Market commentary

Monday’s bond market rally is continuing this morning with the yield on the 10 year note falling to 2.69% after hitting 2.84% on Friday. The August retail sales report was slightly better than expected as sales rose 0.4%, the second straight month of modest gains.

We have a full economic calendar the remainder of the week with Industrial Production, the Producer Price Index the Consumer Price Index and Consumer Confidence. As we have seen the past few days, expect continued volatility as the markets to trade on the data.

Mortgage prices have improved by approximately .25% this morning.

Market commentary

Bank stocks are driving equity markets higher today as a weekend meeting of world financial regulators gave large banks more time than had been expected to increase their capital. This rally in stocks may be short lived; however, as according to a WSJ survey of economists, optimism about the recovery is waning. Three in 5 economists surveyed said they expect that the Fed will eventually embark on additional quantitative easing. This comes on the same weekend that Goldman and Pimco both made headlines with their calls that the Fed will begin a second round of easing by Q1 of 2011. While economists believe this would be the wrong thing to do, clearly these folks are not confident in a continued U.S. economic recovery.

Bonds have improved slightly this morning with mortgage pricing better by approximately .125%.

Market commentary

Yesterday saw the convergence of a lower trade deficit, better jobless claims report, and a weak 30-year auction which pushed Treasury yields higher. The 10-year sold off almost 10 bps on the day to close at 2.76% and has opened weaker again this morning currently at 2.79%. Mortgage prices are worse by .250% to .50%.

Market commentary

A successful 10 year note auction on Wednesday lifted bond prices into the market close. This morning we see a reversal of that, with bond prices lower across the curve as initial jobless claims dropped from the 478,000 to 451,000, a positive sign for the job market.

Later today the U.S. Treasury will be auctioning $13 billion of 30 year bonds, which is expected to be well received. As of now the price for 30 year bonds is lower by over 1.00% and mortgage prices are worse by .25% to .375%.

Market commentary

The much anticipated release of employment figures came in stronger than expected this morning with slightly better numbers for August with notable revisions to June and July. The headline change in non-farm payrolls showed a loss of 54k jobs in August but a gain of 67k private payrolls. The headline drop still reflects the loss of temporarily hired census workers. June and July were collectively revised from a 351k loss to a 229k loss. Average hourly earnings were 0.3% higher and the average weekly hours were unchanged at 34.2.

The bond market immediately sold off on the higher than expected gain in private payrolls. The yield on the 10 year note spiked from 2.63% to 2.74% and mortgage bonds worsened in price over .50%. The markets have calmed slightly since the data, with the yield on the 10 year note falling back to 2.71% and mortgage bonds worse by .25% to .375%. Keep in mind many senior staff on the trading desks are on vacation in front of the Labor Day Holiday and volume is light.

Next week is light in terms of economic data; however, the U.S. Treasury will be auctioning 3yr and 10 yr notes and 30 yr bonds.

Enjoy you long, three day weekend!

Market commentary

The clarification of the Fed’s position on Quantitative Easing and the health of the economy (via their minutes and Bernanke’s statement from Jackson Hole) exposed Treasuries to the economic data with less support than they had just a week ago. Sure enough, the ISM report of manufacturing activity was stronger-than-expected yesterday sparking a rally in stocks and barrage of selling in bonds.

This morning new claims for unemployment benefits were reported as falling slightly last week, however, continuing claims remain at elevated levels. In addition to this report, worker productivity in the second quarter fell 1.8% while unit labor costs rose 1.1%. The Fed takes a keen interest in labor costs as these costs are a key measure of inflation.

The result of this weak data is unexpected as investors continue to sell bonds, driving the yield on the 10 year note back to 2.63%. Mortgage pricing is worse again by approximately .125% to .250%.

As usual, the first Friday of each month, the Labor Department releases the jobs data for the previous month. Tomorrow’s release is expected to show the labor market lost 100,000 jobs, while private sector hiring increased 41,000. The unemployment rate is forecast to rise from 9.50% to 9.60%.

Market commentary

The early releases this morning were mixed with ADP showing a slight decline in private payrolls of 10,000 for August while the Challenger Job Cut Announcements report showed the fewest corporate layoff announcements since June 2000. For August, Challenger shows 34,768 announced layoffs versus an average of 107,000 for all of 2009. Mortgage applications were up 2.7% for the week with purchase applications rising 1.8% according to the Mortgage Bankers Association.

The main data today was the ISM Manufacturing Index. This data was a huge surprise, jumping to 61.5 from 57.5. Expectations were for a dip to 55.3. In fact, given the fact that several of the regional surveys came up short recently, expectations may have been for a small miss to the downside.