Although the rates market put up a good fight today, in the end there were just too many factors working against our cause (lower mortgage rates!)

In what was a considerably choppy session, lenders repriced for the worse and lenders repriced for the better. At the 5pm "HEAD TOWARDS THE EXIT" marking time, the FN 4.5 had fallen 2/32 in price to 100-14.

Check out the chopatility, the FN 4.5 traded in 19 tick range! (WHICH CAUSED TWO ALERTS!)

Today, several factors collaborated in a group effort to further the trend of rising rates in the bond market....

Core CPI data was "on the screws" at +0.1% while the headline number was pushed 0.4% higher by rising energy costs. Although inflation is generally the enemy  of fixed income investments, today's print did not indicate that inflation was a near term issue. Stocks translated the data as a reason to remove deflationary fears from their radar...which allowed for more rallying in equities!!! (note sarcasm). Bonds kinda shrugged off the data (apathetic Id say)

A better than expected read on Industrial Production was a contributor to climbing yields too.  Industrial output registered a 0.8% gain in August and July's read was revised higher to +1.0% from +0.5%.This was definitely good news for stocks.

Another reason for rising rates was a report issued from think tank Medley Global Advisors which suggested that two FOMC voters were favoring a hike in interest rates at next week's Fed meeting due to long term inflation fears. However upon further review it was noted that the Fed would prefer continuous jawboning and bully pulpit tactics to manage long term inflation expectations. Either way, the front end of the yield curve suffered as trader's didnt think twice about exiting positions in shorter maturities.

The 2 yr note rose over 5bps to almost 1.00% while the 10 yr note  yield rose only 2 bps. 2s also saw the majority of trading volume today.

Here is a chart of the 2 yr yields rapid rise after the dovish comments from MGA...

Tomorrow we get Housing Starts (consensus 598K), Building Permits ( consensus 583K), Jobless Claims ( consensus 555K), Continuing Claims (consensus 6.10million), and Philly Fed data.

At 11AM the Treasury Department will announce the terms of next week's 2s/5s/7s auctions. $43billion, $40 billion, and $29 billion are the expected auction amounts. Treasury auctions continue to see decent demand regardless of the optimistic smoke signals that stock traders are sending.

I am finding it difficult to offer up any words of wisdom regarding a lock/float outlook. Technicals point towards more selling in the bond market and fundamentals do too! (thought: labor market weakness to cause chaos in equities? or is the consumer led recovery already forgotten?) But the range has done a decent job of containing trends and rates have performed well regardless of improving economic indicators and a rallying stock market. All this means is the range trade persists! (3.50 has served as strong support for the 10yr....there is room to test that level still.)

UGH...I DONT KNOW WHAT TO TELL YOU!!! (can I get some honesty points at least?) If you were trading I would tell you to be defensive of too much strength and speculative when weakness intensified (range trade). I would say be mindful of high volume marks (market profile) and not to overthink the interpretation of data. Set yourself a goal...once you meet it, dont hesitate to take profits.

I wish you had some way to hedge your income besides BEST EFFORT locks (so expensive), if you did this would be a lot easier!

HAHA WAIT I KNOW WHAT TO SAY!!!

We advised locking last week, so hopefully tomorrow's outlook doesnt matter because you have become a spectator to the choppy rates marketplace. Right?

:-D

Good night all!