Economic/Bond Market Summary – March 23, 2010

Courtesy of Rom Badilla, CFA – Bond Trader

Today’s economic data releases suggest a mixed bag of signals on the U.S. economic recovery.  Sales of existing home sales for February declined 0.6 percent to a 5.02 million annualized rate according to the National Association of Realtors.  Despite coming in better than economists’ surveys of a decline of 1.1 percent, February’s drop marks the 3rd month in a row of declines as the latest Federal tax credit incentive is failing to produce a jump in sales for the year.  Furthermore, inventory of available homes increased by 312,000 in February from the prior month, the largest gain since April 2008, to bring the total amount of houses for sale to 3.59 million.

The Federal Housing Finance Agency released its US House Price Index for January, which showed a month over month decline of 0.6 percent, better than surveys of a decrease of 0.8 percent.  While improving over economists’ expectations, the prior month’s reading was revised downward to a decline of 2.0% from an initial reading of a decrease of 1.6 percent.

The Richmond Fed Manufacturing Index, which is a gauge of broad activity in the area’s manufacturing sector, gave reason for optimism on stability and growth.  The Index improved 4 points from the prior month to 6 in March while economists expected a reading of 5.  Later on in the day, ABC News released its Consumer Confidence Index, which painted a different picture on the economy.  The Index for the week ending March 21st, came in at -44, a decline of one point from the prior week.

The U.S. Treasury auctioned off $44 billion of securities today, the first of three note auctions this week.  Unlike recent auctions, the 2-year note drew little support as the bid-to-cover ratio, which is a gauge of demand, was at 3.0, below the average of the past 10 auctions of 3.10.  Tomorrow, the U.S. Treasury will auction off $42 billion of 5-year notes, which will be followed by $32 billion of 7-year notes on Thursday.

As a result of waning demand, yields on U.S. Treasuries increased across the yield curve.  The yield on the 2-year increased a basis point to 0.97 percent while the 5-year followed suit and closed at 2.42.  The 10-year finished at 3.69 percent, 3 basis points higher from the prior close.  The Long Bond underformed the most as the 30-year yield increased almost 4 basis points to end trading at 4.61 percent.

Disclaimer

The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of iTB Securities LLC or its employees.

Posted by John Adams on March 24, 2010 under Bond Chatter,Bond Gurus | Tags: , , , , — | View Comments

Economic/Bond Market Summary – March 22, 2010

Courtesy of Rom Badilla, CFA – Bond Trader

The start of the week had only one major economic data release as the Federal Reserve Bank of Chicago released their U.S. National Activity Index, which suggests that the economy is experiencing below trend growth.  The reading for February came in at -0.64.  Furthermore, the prior month reading was revised from an initial reading of 0.2 to -0.04.  The Index is a gauge of economic activity and inflationary pressures which is drawn from 85 economic indicators that covers output, income, employment, consumption, housing starts, sales, and inventories.

On the international front, European Union leaders remain divided on rescuing Greece and their troubled economy.  Foreign ministers from France and Italy stated that they are in favor of financial aid while EU leader, Germany remain opposed to aid.  On Sunday, German Chancellor Angela Merkel stated that aid should not be on the agenda of the EU summit, which opens Thursday.  On Monday the Chancellor said at a press conference with European Parliament President Jerzy Buzek that, “the IMF is a subject that we need to consider and that we must continue to discuss.”

U.S. Treasuries rallied across the curve as the “belly” outperformed.  The yield on the 5-year declined 5 basis points to finish at 2.41 percent while the 7-year followed suit and closed at 3.10.  The 2-year yield finished trading at 0.97 percent, a decrease of 2 basis points from the prior close.  The 10-year yield declined 3 basis points to end at 3.66 percent while the yield on the Long Bond inched a basis point lower and closed the day at 4.57 percent.

With everyone’s NCAA brackets busted due to unlikely Cinderella story and the Bears sleeping in from their winter slumber, the S&P has rallied the past several weeks.  While the markets have proven resilient, the S&P is in overbought territory. With quarter-end on the horizon, I do not expect the equity market to maintain its lofty status as sellers emerge with profit taking motives and performance window dressing.  Coupled with the Greece pickle re-emerging (did it really disappear in the first place?) and the aforementioned low inflation backdrop and oversold conditions of the front end of the Treasury curve, I continue to think that the 2 year should be poised to rally in the short term from this point.  Again, there are conflicting signals on both the technical and fundamental front, both domestically and overseas.

While there are enough tailwinds to warrant a action, a prudent trader such as myself advocates a tight leash on risk with a stop loss slightly above the fabled 1.00 percent support level or 99-23 dollar price on US Treasury 0.875 Coupon Feb 29, 2012 Maturity.  In my many years in the business, I have been taught that “discipline trumps conviction”.  A market that rivals the unpredictability of Northern Iowa’s upset over Kansas, should not be an exception.  Hopefully, my Bond trades fare much better than my brackets and that there are no pumpkins at quarter end.

Disclaimer

The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of iTB Securities LLC or its employees.

Posted by John Adams on March 23, 2010 under Bond Chatter,Fed Watching | Tags: , , , , , , — | View Comments

Securitized and Rates Markets Insights: Week Ended March 19

Source: Reva Capital Markets LLC

Summary:

Even though the EU blessed Greece’s fiscal plan, no specific aid was provided which kept their sovereign spreads wide, and Greece threatens to approach the IMF due to the “unsustainable cost” of refinancing its debt. This is a dangerous game of chicken, and any IMF intervention will deeply undermine the Euro. Fannie Mae announced the buyout schedule for the delinquent/HAMP loans by coupons, which brought about tremendous volatility in the roll markets again. The non-agency MBS sector rallied after a few weeks of being unchanged. CMBS spread continued to rally, even as an early read on March remit suggests an increase in the pace of credit deterioration. The focus for this week should be on Fed-speak notably Bernanke and Yellen, the GSE hearing on Tuesday and the March 24 and 25 meeting with European Union summit.

Economy:

  • The main economic data last week inflation, which came in pretty weak, but is not surprising given the high output gap that exists. Housing starts and industrial production came in as expected.
  • This week should bring an update to two critical sectors – housing (existing and new home sales on Tuesday and Wed respectively) and capital spending (durable goods on Wed). In addition we get final 4Q GDP and University of Michigan confidence on Friday.
  • This week is busy in terms of Fed speak, with the key speeches to watch being Yellen and Bernanke..
  • The Fed kept rates unchanged, and reiterated the “extended period” language. There was some market chatter that the Fed would hike the discount rate on Thursday (similar to the last FOMC) which did not happen. But even if it were to happen, it is not a big deal since the discount rate doesn’t matter.
  • Even though EC seemed to bless Greece’s austerity package from a few weeks ago, there was no actual aid and Greek bond spreads are still high – unsustainable for Greece that has to refinance a large amount of debt.
  • On Friday the Fed removed an exemption it had given to 6 banks which allowed them to basically lend to their broker dealer using the discount window. This was one of the early changes to the discount window that the Fed put thru in the wake of the Bear Stearns hedge fund going down. That way the dealer could funnel its structured product collateral thru its bank to the discount window (haircuts were pretty high though). Note that this was pre-PDCF, etc., so dealers could not borrow from the Fed directly.
  • Senator Dodd introduced legislation to overhaul financial regulation that would force the biggest firms to contribute to a $50bn fund to pay for future financial collapse, limit the Fed oversight to the biggest banks, restrict prop trading and set up a consumer protection agency.

Rates:

  • Treasury rates increased slightly in the front end and the curve flattened. Some of this was driven by concerns around a potential discount rate hike as well as the $118bn of Treasury auctions (2s, 5s and 7s) this week. Over the week, 2y:+3bp, 10y:-2 bp, 30y:-5bp.
  • The effective funds rate has been trending a little high the last few weeks, driven by a potential change in the GSEs cash management policy, the higher setting of the general collateral rate and some expectation of reverse repos with the GSEs. This helps keep short end spreads tight, and the spread between Libor and Fed funds has also been tightening as Libor has been fairly sticky.
  • TIC data last week reflected that flows into US Treasuries remained strong, at the expense of agency debt, MBS and corporates. Also overseas investors are letting their bill holdings mature, and moving money out the curve, rather than in spread product.
  • Moody’s warned that US, UK, France and Germany have moved closer to losing their AAA status due to mounting debt levels.

Agency MBS:

  • Fannie Mae announced additional details on its purchases of delinquent loans, confirming that the buyouts will be prioritized by coupon. The March buyouts of approximately 220,000 loans will include 6.5s and higher coupons as well as permanent modifications and 24-month delinquent loan buyouts. The April buyouts will be for 6s and new 120+ day delinquencies for higher coupons; the May buyouts will be for 5s and 5.5s and new 120+ day delinquencies for higher coupons; and the June buyouts will be for the coupons below 5% and new 120+ day delinquencies for higher coupons.
  • Agency MBS underperformed Treasuries, led by the lower coupons. Rolls repriced after the Fannie Mae announcement, and Gold/FN 6.5 swap collapsed. Current coupon Libor OASs were about 7bp wider.
  • The Fed bought $10bn in agency MBS last week, bringing total purchases to $1236bn, versus the committed $1250bn, leaving $24bn of further buying capacity.
  • Fannie Mae introduced the Alternative Modification Program this week, which is a way to address the problem of many modifications where borrowers who are currently making payments but being deemed ineligible due to debt to income ratio <31%, target ratio couldn’t be reached, or a lack of documentation Now, Fannie Mae-approved servicers must consider an alternative modification plan, but notably the terms are not meaningfully different from HAMP. The essence of the program is to keep supply off the market.

Non-agency MBS:

  • It was fairly quiet in the residential credit market last week. ABX finished slightly higher across all the indices on the week and seasoned Option ARMs SSNR increasing by 1pt.
  • Last week Moody’s alarmed investors about GMAC servicing by placing hundreds of GMAC-serviced bonds on negative watch due to GMAC’s cash management practices (sweeping all payments received into a custodial account, but commingling funds received from different deals which could result in contention over liability claims had GMAC filed for bankruptcy). Since then, GMAC separated the trusts into individual custodial accounts, which should remove the securities from downgrade watch.
  • Wells Fargo signed on to participate in the Treasury second-lien modification program (2MP). The second lien program mandates participating servicers to automatically modify the second when the first lien loan is modified under HAMP. Wells Fargo is the second servicer to sign onto the program after BoA, which signed on at the end of January. Despite two of the largest servicers having signed on, no details on the program have been released by the Treasury since the original announcement in late April of last year.
  • The Treasury released its monthly report on HAMP late last Friday. Although the pace of trial modifications continues to fall, conversions to permanent  modifications have been picking up. The report states that 32% of the 822k trials started at least 3 months ago have been approved for conversion and, furthermore, only 11% have been canceled.

CMBS:

  • CMBS continued to tighten, and 2006-07 last cash flow super seniors tightened by about 20-30bp. CMBX also outperformed especially in subordinate tranches, which rallied 0.5-3pts, led by AJ single-A tranches.
  • An early read on the March remittance reports suggests an increase in the pace of credit deterioration. Headline 30+ day delinquencies surged by 90bp in March, to 7.8% across the fixed-rate universe. If you include specially serviced current loans, the number rises to 11.2%. The delinquency results were adversely skewed by the transfer of the $3bn Peter Cooper Village & Stuyvesant Town loan from current with the special servicer to foreclosure. We continue to see a divergence by vintage, with 30+ day delinquencies for pre-2005 vintages steady at 6.1% on the month, versus a 124bp rise in 2005+ vintages to 8.4%.

Thought for the Week

Upcoming legislation (Senator Dodd’s financial reform bill) makes a feeble attempt at having a significant effect on the future of the securitization markets. The bill includes a 5% credit risk retention for the originator, hedging restrictions, disclosure and reporting requirements, and policies on reps and warranties. All of which are already in place, in some form another, but did little to curtail the excessive lending and risk taking. The bill also lays out a regulatory framework for these issues and allows the regulators (FDIC/OCC/SEC) to develop specific rules for each securitized asset class that conform to the broad guidelines laid down in the bill. Which I think is a waste of time because the regulators should be focusing setting broad rather than narrow, product based guidelines which are easy to circumvent. The bill will be debated before the Senate Banking Committee by Easter and in the full Senate in May. The final rules will be published 270 days after the bill passes and will become effective for resi-mortgage securitizations one year after the rules are published. The fear among banks is that if their ability to do business as before is significantly constrained by the new regulation, securitization may become a less attractive funding alternative, potentially leading to less loan origination. Unfortunately there is nothing in this bill that the banks should fear.  The bill will likely force better origination, for now,  but the banks will definitely pass on the burden of retention on to borrowers in the form of higher loan spreads.  The new regulation should be focusing on overhauling the whole system rather than trying to better police/regulate a broken system.

Posted by BondSquawk on March 22, 2010 under Bond Chatter | Tags: , , , , , , , , , , , , , , , , , , , , , — | View Comments

E-Trade Names New CEO

Starting next month, former Citigroup exec, Steven Freiberg will take over the reins of power at E-Trade Financial. Freiberg will become the new CEO for the brokerage firm replacing another Citigroup alum, Robert Druskin.

Druskin will continue as chairman after serving as E-Trade’s CEO after Don Layton stepped down at the end of 2009.

As Freiburg assumes his new duties, he will also become an E-Trade board member.

Posted by John Adams on under BondSquawk | Tags: , , , — | View Comments

Economic/Bond Market Summary – March 19, 2010

Courtesy of Rom Badilla, CFA – Bond Trader

After Thursday’s onslaught of economic events, there were no major U.S. data releases on Friday.  Despite the lack of data, the markets were far from quiet as U.S. Treasury yields spiked even higher on speculation that the Federal Reserve will increase the discount rate before their next FOMC meeting in April.  The speculation weighed on the market after only several weeks ago, the Fed increased the discount rate, which is the rate charged on direct loans to banks.  This action brought the differential between the Federal Funds Target rate to 50 basis points.   By raising the rate, the Fed is turning back the discount window’s original purpose that was evident prior to the financial crisis, a liquidity backstop for banks and not a primary source of funding.

As a result, the Treasury market fell again as yields spiked across the curve.  The 2-year yield increased 3 basis points to close at 0.99 percent as the 3-year underperformed the most by closing at 1.56 percent, a 5 basis point increase.  The 5-year yield jumped 4 basis points to finish at 2.46.  On the longer end of the yield spectrum, 10 year notes fared somewhat better by closing the session at 3.69 percent, a basis point increase from the prior day.  The Long Bond was the lone point to rally, which flattened the yield curve further.  The yield decreased a basis point to close at 4.58.  The yield spread between 2 and 30-year Treasuries is now at 359 basis points, which is approaching the lows for 2010, reached on January 1st at 349 basis points.

Posted by John Adams on March 19, 2010 under Uncategorized | Tags: , , , , , — | View Comments

Bond Trader Talk

2’s : 2yr notes

5’s : 5yr notes

10’s: 10yr notes

ABX Index: A series of credit default swaps based on 20 bonds comprised of subprime mortgages.

Across the Curve: Every bond in the yield curve.

Back End: The long end of the yield curve.  The opposite of Front End.

Basis Point (BP): .01%

Belly: The intermediate part of the yield curve. See wings

Beta: a number that measures the correlation if the returns of a security or portfolio to the returns of the market.  A beta of zero means there is no correlation.  A positive beta indicates that the asset moves in the same direction as the market, and a negative beta means the asset moves in the opposite direction of the market.

Big Bid: High demand for a security.

Bonds – 30yr Bonds

Breakeven Curve: A yield curve of the yield spread between TIPS and nominals.

Cheapest to Deliver (CTD):  For a futures contract that can be settled by the delivery of more than one debt issue, this is the issue that is most profitable (cheapest) to deliver.

Capitulation: To give up on trying to recover market losses by exiting from a losing trade.

CapU: Short for capacity utilization, an economic indicator the measures the percentage of current economic output to the potential maximum output.

Carry: The accrued interest minus the cost of financing a securities position.

Cash Bonds: Actual bonds as opposed to bond futures.

Consolidate (Consolidative): A downward correction after a market has been rising.

Convexity Buying: When convexity players buy treasuries in a falling rate environment to hedge against the risk of negative convexity.  The opposite of convexity selling or convexity paying.  Also referred to as convexity hedging.

Convexity Flows: Convexity buying or selling.

Convexity Paying: See convexity selling.

Convexity Players: Mortgage Backed Securities investors, mortgage servicers, and mortgage related GSEs that use treasuries to hedge against the risk of negative convexity.  Convexity players will buy treasuries in a falling rate environment because the price of the treasuries will increase and offset the effects of the negative convexity of the mortgages.

Convexity Selling: When convexity players sell treasuries in a rising rate environment to unwind hedges that they put on to hedge against the risk of negative convexity.  The opposite of convexity buying.

Credit Default Swap: A swap contract in which the buyer purchases protection against the default of a credit instrument from the swap seller.

Decent Bid: Decent demand for a security.

Directs: A direct bidder in a treasury auction- a primary dealer.  The opposite of Indirects

Dovish: Used by traders to describe the Federal Reserve FOMC attitudes towards interest rates to indicate a desire to have low interest rates; the opposite of Hawkish.

Fast Money: Leveraged buying of securities, typically by hedge funds.  The opposite of Real Money.

Flatter (Flatten): Used by traders to describe changes in the yield curve to indicate a decrease in the difference short-term rates and long-term rates; the opposite of Steeper.

Flows: The flow of money into or out of a market.

Front End: The short end of the yield curve.  The opposite of Back End.

Good Bid: Good demand for a security.

Great Bid: Great demand for a security.

Hawk (Hawkish): Used by traders to describe the Federal Reserve FOMC attitudes towards interest rates to indicate a desire to have high interest rates; the opposite of Dovish.

HC: Short for high coupon.

Hit: When a trader takes a market maker’s bid and sells the security.

Implied Volatility (IV): An estimated measure of the volatility of a security’s price.  Implied volatility generally increases in a bear market, and decreases in a bull market.

Indexers: Money managers that create portfolios to match an index like the Lehman Aggregate Bond Index. Similar concepts exist in the equity markets when money managers are indexed to the S&P 500.

Indirects: An indirect bidder in a treasury auction that places their bid through a dealer.  Because they are often foreign buyers of treasuries, traders often use this as an indication of how much foreign buying there has been in a treasury auction.  The opposite of Directs.

Lift: When a trader takes a market maker’s offer and buys the security.

Long End: A reference to the long end of the yield curve, or longer maturity bonds.

Loop Effect: The phenomenon that certain technical factors will cause market price movements to feed upon themselves and accelerate the price movement.  For example, rising prices can cause short sellers to buy into the rally to cover their shorts and limit their losses.  This buying accelerates the rising prices.

Negative Convexity: A phenomenon attributable to callable bonds (particularly mortgage back securities) that causes the price to increase less, or even decrease, when interest rates decrease.  The reason is that it becomes more likely that the principal is likely to be repaid and will have to be reinvested at the new lower rates.

Nominals: Regular treasury securities

Old Bonds: Off -the-run bonds, as opposed to current or on-the-run bonds.

Option Adjusted Duration (OAD): The measurement of duration adjusted for the first option (put or call, but usually a call) provision.  Adjusting for a call provision will shorten the duration of a bond.

Option Adjusted Spread (OAS): A spread to the treasury yield that accounts for imbedded options in a bond  that could result in an early redemption.  It is usually used to account for the potential negative impact of mortgage prepayments on an MBS when interest rates fluctuate.

Play Large (Big): When the market aggressively participates in a treasury auction.

Play Small: When the market does not aggressively participate in a treasury auction.

Prime X Index: An index that allows investors to take positions on prime mortgage-backed securities through credit default swaps.

Real Money: Unleveraged buying of securities typically by money managers.  The opposite of Fast Money.

Real Rates: The real level of interest rates that is free of credit risk premium and inflation premium.  Also referred to as real yield.

Real Rate Longs: A trade position of being long TIPS

Real Yield Curve: The yield curve comprised of TIPS, or real yields.

Rock: Trader lingo for par. For example, I just traded some 10’s at the rock!

Secular: Long term.

Short End: A reference to the short end of the yield curve, or shorter maturity bonds.

Steeper (Steepen): Used by traders to describe changes in the yield curve to indicate an increase in the difference short-term rates and long-term rates; the opposite of Flatter.

Stop: The highest yield accepted in a treasury auction.

Swap Spreads: A swap is an over the counter agreement to exchange cash flows.  Most often it is an exchange of a fixed interest rate payment with a floating one.  There is default risk in a swap.  The swap spread is the yield spread between swaps and the default risk free return of treasuries.  Swap spreads are an indication of the markets aversion to risk.  Because of the size and liquidity of the swap market, it is thought of as a better indicator than credit spread.

Tail: The spread, in basis points, between the when-issued yield of a treasury security just prior to auction and the highest yield (the Stop) of the auction.  A tail indicates weak demand with demand being inversely related to the size of the tail (the larger the tail, the less demand for the bond).

Tailed: An auction that resulted in a tail, indicating a lack of demand.

Tick: In reference to the price of a bond as expressed as a percentage of par, a tick is 1/32nd or .03125 of a point.

Two-Way Flows: Active buying and selling from investors in a security.

Ultralongs: The 30-year bond.

Waving it in: When a trader likes a security so much that they want to buy large quantities.  Also referred to as backing up the truck.

Wings: The short end and long end of the yield curve. See belly.

Yard: A billion dollar trade.

Zero Volatility Option Adjusted Spread: A measure of cash flow spread of an MBS over the treasury yield curve that takes into account the prepayment risk of the MBS.A measure of cash flow spread of an MBS over the treasury yield curve that takes into account the prepayment risk of the MBS.

Posted by Mike on under Educational | Tags: , — | View Comments

Treasury Trading Strategy for March 19th

Courtesy of Rom Badilla, CFA – Bond Trader

The front end of the Treasury Curve sold off aggressively on Thursday on heavy investor selling and as the 2 year crossed above technical resistance levels in the 200 day moving average.

Pink line represents the 200 day MA

With the recent FOMC statement that there will be no change in monetary policy and inflation will be subdued for quite some time, today’s jump in yields may prove to be a short term opportunity to buy the 2 year Treasury at 0.95 percent with a target of 0.80 to 0.85 percent.

Given that the developing trend line is pointing to higher rates that is contrary to the fundamental tailwinds, this opportunity as with the many in the game of trading has some risks.  Therefore, placing a tight leash on risk via a stop loss above the next resistance level of 1.00 percent level should be warranted.

Disclaimer

The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of iTB Securities LLC or its employees.

Posted by John Adams on under Bond Gurus | Tags: , , , — | View Comments

Economic/Bond Market Summary – March 18, 2010

Courtesy of Rom Badilla, CFA – Bond Trader

Today’s economic data release suggests some signs of a U.S. recovery without inflation.  Fresh off the heals of the latest Federal Reserve policy statement that inflation is not a risk at the moment, the U.S. Bureau of Labor Statistics released the Consumer Price Index for February.

Consumer Prices were unchanged for the month after a 0.2% increase in January and as economists were expecting an increase of 0.1%.  Also, the Conference Board released its Leading Economic Index, which is a gauge of current economic activity and currently suggests that the economy is expanding, albeit at a slower pace.

The LEI Index for February increased 0.1%, which matched consensus expectations and after a 0.3% jump in January.  While it failed to match the pace of the prior month, which can be attributed to snowstorms in parts of the U.S., the LEI Index has posted an increase for the eleventh straight month.

In addition, the Philadelphia Federal Reserve Business Outlook Survey Index came increased from the prior month’s reading of 17.6 to 18.9 in February, beating economists’ surveys of 18.0.  The Index, which any number above zero suggests growth, is recovering from a decade low of –38.80, posted in October 2008.  Finally, Initial Jobless Claims for the week ending March 13th declined slightly week over week.  Americans posting for benefits for the first time decreased 5,000 from the prior week to 457,000, which were in line with expectations.  Continuing Claims increased by a revised prior week number of 4,567,000 to 4,579,000 for the week ending March 6th.  Economists were expecting Continuing Claims to be at 4,522,000.

Despite signs of tame inflation, U.S. Treasuries sold off as yields spiked across the curve.  The 5-year underperformed the most as the yield jumped 5 basis points on heavy investor selling to close at 2.42 percent.  The yield on the 2 and 3-year moved 4 basis points higher to finish trading at 0.95 and 1.51 percent.  The yield on the 10-year increased by the same amount to 3.68.  The Long Bond closed at 4.59, an increase of 2.5 basis points from the prior day.

Posted by John Adams on under Fed Watching | Tags: , , — | View Comments

Consumer Price Index Fell Flat in February

The cost of living in the U.S. was unchanged in February, but the U.S. Government debt prices held onto their earlier gains. This is the first time that the consumer-price index didn’t increase since March 2009.

Core CPI printed in line with expectations at +0.1%, but unrounded it rose just 0.053% on the month. HL was below expectations, flat on the SA number, and barely rising on the NSA number to 216.741 vs. 217.0 expected (Bberg consensus was 217.04). Energy down led by gasoline as expected, but the 0.7% drop in apparel prices was not expected. Fair value on Apr10s 100-06+.


Posted by John Adams on March 18, 2010 under Fed Watching | Tags: , , — | View Comments

Economic/Bond Market Summary – March 17, 2010

Courtesy of Rom Badilla, CFA – Bond Trader

After Federal Reserve policy makers stated yesterday that inflation “will remain subdued for some time”, wholesale prices in the U.S. declined significantly in February.  The U.S. Bureau of Labor Statistics released the Producer Price Index, which revealed a decline of 0.6% for February, which were well below economists’ expectations of a decline of 0.2% and after an increase of 1.6 percent in January.  The Producer Price Index excluding Food and Energy met survey numbers by increasing 0.1% for February, which is down from the prior month’s reading of an increase of 0.3%.

As a result, the longer end of the U.S. Treasury curve rallied as yields declined.  The yield on the 10-year declined a basis point to close at 3.64 percent while the yield on the Long Bond finished trading at 4.57 percent, a drop of 2 basis points from the prior close.  The 5-year note underperformed the rest of the curve as the yield increased a basis point to finish at 2.36.  The yield on the 2-year increased to 0.95 percent, a basis point higher from the previous trading session.  The curve has flattened significantly in the last several trading sessions as the yield spread between the 2 and 30-year Treasury is now at 364 basis points, the lowest since late January.

In other economic data releases, Mortgage Applications for the week ending March 12, declined according to the U.S. Mortgage Bankers Association.  The index declined 1.9% on the week after a 0.5% increase in the prior week.  This drop suggests that despite an extension of a tax credit for homebuyers, demand remains weak and a sustained housing recovery will take some time to materialize.  Tomorrow’s economic data releases highlight the Consumer Price Index, Jobless Claims, and Philadelphia Fed Survey Index.

Posted by John Adams on under Bond Chatter | Tags: , , , , — | View Comments
« Newer Posts — Older Posts »