1/15/2009

Three economic readings at 8:30 put a slight bit of pressure on treasury and mortgage prices, but not much. Prior to 8:30 data the 10 yr note and mortgage prices were slightly better, but again not much. The stock index futures trading was about unchanged after 8:30 news. By 9:30 treasuries and mortgages were trading better as the equity markets opened weaker with the DJIA down 90 points in the first 15 minutes of trading.

Weekly jobless claims were expected to be up about 30K, we were looking for a 60K increase; claims were reported up 54K, continuing claims however were down to 4.5 mil from 4.6 mil last week and the 4 week average declined a little. Traders tend to watch the continuing claims these days. Next up; the Fed's NY Empire State manufacturing report. The overall index improved a little but from very bearish readings to -22.2 frm -27.8 in Dec, new orders component to -22.8 frm -23.5, employment component to -26.14 frm -23.4 and the price component to -18.8 frm -7.5 in Dec. Overall fractionally better. Finally at 8:30 Dec PPI; the overall was right on target at -1.9% and the core (ex food and energy) +0.2%.

Taken together the three reports had very little impact on interest rate markets. At 10:00 the final data of the day; the Philadelphia Fed business index. The Philly data has more teeth as it covers a wider NE region the the NY Empire State. The overall index was expected at -35.0, it hit at -24.3 frm -36.1 in Dec; new orders at -28.2 frm -22.3, prices pd at -25.5 frm -27.0, and employment at -28.6 frm -39.0. Somewhat better but still showing huge declines in the region. The stock market wasn't impressed and fell further after the 10:00 release.

The ECB cut its base rate this morning, from 2.50% to 2.0%. It was expected as Europe's economies are sliding as fast as here in the US. ECB's Trichet in the past had not been in favor of more rate cuts but had to face the reality; the bank will have to step up again in Feb.

The stock market opened weaker at 9:30; the remainder of the day for the rate markets will be watching stocks. A rebound in stocks will keep interest rate markets from improving; one the other hand a big hit similar to yesterday in the stock market (-248 on the DJIA) will keep safe haven moves into treasuries. Mortgage prices are stuck in a very narrow range and not likely to break into any big moves in either direction without more direct stimulus or favorable announcements from the Fed or Treasury.

RealtyTrac reported this morning foreclosures in 2008 were up 81% from 2007. No end in sight; the various modification plans to stem the tide have had only very marginal impact on foreclosures.

Crude oil is falling this morning, down $2.00. Gold about unchanged; the dollar better against the euro.

Money continues to chase safety and yield, moving to the longer end of the curve. The mortgage markets are not getting much lift with the housing markets continuing to erode. As long as the economy continues to decline investors won't buy mortgages, even with yields much better and loans currently being originated being substantially better risks than the junk originated in the past. Not only are mortgages not in favor, the spread between high grade corporate bonds and treasuries is widening implying investors want security not yield.