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Market Commentary...






2/3/2012

7 days: LOCK.

7-15 days: LOCK. (TAKE ADVANTAGE OF THIS RALLY)

15-30 days: FLOAT.

30+ days: FLOAT.

Every month the employment report sends markets into wild volatility. Today was one of the most volatile we have seen on data that was not even close to what 100 economists were forecasting. The unemployment rate expected unchanged, declined 0.2% to 8.3%; non –farm jobs were off estimates by 100+K, private jobs off forecasts by 70K. Each month it is a guessing game trying to estimate what the BLS will report. The data today is likely subject to revisions downward next month, nevertheless it is what is now on the record and traders are as always taking it seriously.

 

The 10 yr note yield yesterday hit very close to the resistance level at 1.80% (1.81% intraday), technically it failed when the employment report hit. We have noted more than a few times recently, when the 10 yr yield has declined below 2.00% in the past, it has not held there for more than a few sessions. Each time on different fundaments but regardless of the issues the note losses momentum and reacts with huge selling each time it trades that low.

 

Adding more selling momentum today, the strong report from the ISM services sector, the index at 56.8 is the highest since last Nov. After Bernanke and the Fed dissed the economic outlook last week, saying the economy was fragile treasury rates declined and equity markets saw selling for four consecutive days----until today when the BLS triggered strong selling in rate markets and nice improvement in equity indexes.

 

This week the 10 yr note yield increased 4 basis points, all of it and more today; its price fell 12/32. MBS prices on the week for GNMA 30s -1/32, 30 yr FNMAs unch. The DJIA +202, NASDAQ +88, S&P +29. Gold -$5.00, crude oil -$1.86.

 

Next week the bond market faces a little more headwind with Treasury auctions on 3s, 10s and 30s for a total of $72B. Not much in the way of economic releases. The equity markets rallied today with very strong volume. The NASDAQ at an 11 yr high. The bond market will move in inverse with equity indexes on prices. We remain skeptical on the rate markets for much lower rates, but not much concern that rates will increase much. Take advantage of any rallies in the bond and mortgage markets.

 

PRICES @ 4:00 PM

10 yr note:                    100.20 -30/32 1.93% +11 bp

5 yr note:                      100.15 -10/32 0.78% +7 bp

2 Yr note:                      100.01 -1/32 0.24% +1 bp

30 yr bond:                   99.30 -75/32 3.13% +12 bp

Libor Rates:                  1 mo 0.260%; 3 mo 0.527%; 6 mo 0.768%; 1 yr 1.084%

30 yr FNMA 3.5 Feb:     103.23 -11/32 (.34 bp) (+1/32 (.03 bp) frm 9:30)

15 yr FNMA 3.0 Feb:     104.03 -7/32 (.22 bp) (unch frm 9:30)

30 yr GNMA 3.5 Feb:     105.03 -10/32 (.31 bp) (unch frm 9:30)

15 yr GNMA 3.0 Feb:     105.23 -11/32 (.34 bp) (-2/32 (.06 bp) frm 9:30)

Dollar/Yen:                   76.54 +0.31 yen

Dollar/Euro:                  $1.3143 unch

Gold:                             $1727.40 -$31.90

Crude Oil:                      $97.70 +$1.34

DJIA:                             12,862.23 +156.82

NASDAQ:                       2905.66 +45.98

S&P 500:                       1344.90 +19.36