It got a little choppy after the Philly Fed Index release was much better than expected, I actually almost issued an alert because I noticed activity picking and it was on the sell side and it was "in size"...but I decided to hold off as trading flows eventually evened out and price stability was restored. The Philly Fed Index.....

For December...

  • Philadelphia Business Conditions were reported at 20.4, improved from the November read of 16.7 and its highest level since April 2005. The market was expecting 16.0.
  • The Employment Index rose from -0.5 in November to +6.3 this print since October 2007.
  • The Prices paid index more than DOUBLED from 14.9 to 33.8....the highest read since August 2008 when Goldman Sachs said oil would test $200/barrel.

On the bearish side....

  • Six month business conditions fell from 36.8 to 24.4
  • The six month capital expenditure outlook index fell from 13.8 to 12.1. Something the FOMC says is a problem. READ MORE

I draw attention to rising PRICES PAID and falling PRICES RECEIVED. Not the right direction to be headed, if that continues some form of cost cutting would need to be considered. Labor?

Check out what I mean by "in size"...notice how much bigger the trades get when the data was released, these were down trades, or bids "getting hit".

The session started with "real money" (PLAIN AND SIMPLE) buyers pushing prices higher out the gate. London joined in the fun...again REAL MONEY BUYERS which forced "black box" traders (PLAIN AND SIMPLE) to cover short positions and added  a bit of a boost to falling rates. Then, following the much than expected Philly Fed print, those same real money accounts were taking profits in size (in the cash market) which pushed yields higher. However, shortly thereafter the "BLACK BOX" accounts started buying at the lows as "real money accounts" had already proven their willingness to buy the long end of the curve as prices fell and yields ticked higher.

WHIIIICH is what occurred as fast money, day trader types did some bargain buying, real money began buying again....WHICH HAS LED PRICES HIGHER AND BROUGHT ME TO MY POINT...


The 3.375% coupon bearing 10yr TSY note is now trading +0-29 at 99-01 yielding 3.489%.....

The FN 4.0 is +0-24 at 98-27 yielding 4.117% and the FN 4.5 is +0-15 at 101-13 yielding 4.358%. The secondary market current coupon is 4.274%. The current coupon yield is 77 basis points over the 10yr TSY yield and 63 basis points over the 10yr swap rate. Yield spreads are WIDER today, trading flows are slow in the MBS market.

I think I need to remind of something MG has been calling attention to as well...the stock lever. Perhaps we should call it the dollar/gold/stock/TSY lever.

The dollar continues to rally, gold prices are falling, stocks are weaker...and TSYs are benefiting from every minute of it. This clearly is having a positive influence over the Treasury market...WHICH I SHOULD REMIND IS STILL TRADING IN BELOW AVERAGE VOLUME. a vote of 16-7 BEN BERNANKE'S NOMINATION HAS FED CHAIRMAN HAS BEEN  CONFIRMED. It wasnt easy though. This is not officially official yet though...the entire Senate needs to vote on this when Congress comes back from winter vacation in January 19th. Why do they get a vacation right now? Seems like a bad time to be taking a month off doesnt it?