Recap of Yesterday

  • Fed's Beige Book  says residential real estate has improved but commercial remains weak, loan demand also  weak, retail sales flat. However....5 of 12 districts note signs of improvement as economic activity is stabilizing. Modest improvement in manufacturing.
  • Mortgage apps hit three month high as rates hold near three month low at 5.02 (C30)
  • Chicago Fed President Evans says its too early to reverse Fed policy...but Fed is mindful of inflationary anxieties
  • Moody's reaffirms US and UK AAA debt rating...both have "resilient " economy, "further downgrades are unlikely over the near term"
  • Obama pushes health care reform to Congress...wants everyone covered, is willing to work on HOW this is accomplished (Public/Private, Coop, Public)
  • Dollar near one year lows against basket of currencies
  • Weak dollar = Stocks higher....led by technology and industrials
  • Oil and Gold more expensive...investors hedging against inflation
  • TSY successfully auctioned $20bn 10 yr notes at high yield of 3.51% (vs. 3.525% 1pm yield).  2.77 bid to cover (better than average). Indirects take 55%
  • TSYs perform better after auction....3.51 after auction, close near 3.47
  • MBS prices bounce around before moving back towards the high side of recent range. FN 4.5 goes out at 100-22
  • MBS trading volume below average...originator supply in $2bn - $3bn range. Specified pools still available for bid. ON SPECIAL: Dollar rolls!
  • "Rate sheet influential" yield spreads tighter. Current Coupon ends day near 4.38%

So far this AM

  • NIKKEI higher, Hang Seng higher, TOPIX higher, Dax higher, Shanghai lower, FTSE lower, CAC lower 
  • Jobless Claims fall to 550,000 after 570,000 read last week. Better than expected 560,000
  • Jobless Claims 4 week average  falls to 570,000 from previous 572,750
  • Continuing Claims fall to 6.088m from previous 6.247m
  • US Trade Deficit at $31.96bn. Wider than expected deficit of $27.35
  • Dollar index under 77, NYMEX crude and Gold more expensive (Gold under $1,000 though)
  • TSY futures higher, stock futures lower after data (flat is better description)

The bond market reacted to worse than expected trade imbalance. The FN 4.5 is currently trading +0-09 at 100-31...

The Day Ahead

  • TSY auctions $12bn 30 yr bonds at 1pm
  • Class A Notification Day...dollar rolls on special...Fed playing large role (haha roll/role) in roll trades
  • Atlanta Fed President (FOMC voter) at 1230. Geithner on TARP at 1pm. Fed Vice Chairman at 1pm

MBS, TSY, LIBOR QUOTES