There will be very abbreviated postings for the next few days.   

 

Econ items that partially influenced rates will be marked with an Ý or an ß.  Items that impacted rates will be marked with a ÝÝ or a ßß

Items that greatly impacted rates will be marked with aÝÝÝ or a ßßß

 

 

Personal Income:  Expected at +0.2% to +0.4%.  Reported at +0.5%   Ý

Personal Spending:  Expected at +0.3 to +0.4%.  Reported at +0.4%

Core PCE:  Expected at +0.1% to +0.2%.  Reported at +0.1%.  Annualized 1.9%

 

Chi PMI:  Expected at 53.0 to 56.0.  Reported at 53.8

 

Factor Orders: Expected at +0.6% to +3.9%.  Reported at +.7%  Ý

 

Final Michigan Consumer Sentiment:  Expected at 81.0 to 83.0.  Reported at 83.4 Ý

 

ÝÝ  At 10:15cdt {15:15gmt} stocks changed direction and began moving upwards.  About one hour later bond rates did the same.  The 10-year Treasury went from its low of 4.517%, +.015% for the day to around 4.550%

 

Eventually, the 10-year Treasury closed at +.035% with the yield at 4.537%.  It most closely followed the S&P 500 and the DJIA.

 

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

There will be very abbreviated postings for the next few days.   

 

Econ items that partially influenced rates will be marked with an Ý or anß.  Items that impacted rates will be marked with a ÝÝ or a ßß

Items that greatly impacted rates will be marked with aÝÝÝ or a ßßß

 

30 August 2007:

GDP expected +3.4% to 4.1%.  Was 4.0%

Chain-Deflator expected at 2.7%.  Was 2.7%

Jobless forecast 320k to 324k.  Was 334K  ß

Help-wanted predicted at 25, was 25

Corp Prof. +25.5%.

10-year Treasury closed -.052% with the yield 4.502%

ßß Yields of asset-backed commercial paper due tomorrow rose to the highest in six years as outstanding debt in the short- term instruments fell for a third week. Demand for the Treasury's $13 billion auction of five-year notes was the highest since September 2006.

``There's that fear of commercial paper that's driving people into the bills market,'' said Nasri Toutoungi, who oversees $23 billion of bonds in Hartford, Connecticut, at Hartford Investment Management Co. ``It's becoming irrational.''

29 August 2007:  post close report

 

Around 11:15 EDT {15:15zulu} the stock market changed direction.  Earlier in the morning Stocks were doing poorly.  A letter from FED Chair; Ben Bernanke to Sen. Chuck Shumer.  Mr. Bernanke discussed ways that lenders and policy makers might assist borrowers that have been hit by the credit crunch and the downward spiral of the housing slump.  He did not endorse some politicians call to increase the limits on the loan portfolios of FNMA and Freddie Mac. 

About one hour later, Bonds followed suit with rates moving upward.  The rate on bonds most closely resembled the S&P 500 from that time on.  The 10-year Treasury closed +.023% with the yield at 4.553%.

 

Today was another good one for rates as the floor of 4.600% was broken and a cleaner floor of 4.500% has probably been established. 

 

While the only major scheduled economic data item was Consumer Confidence.  The prediction for this number was 104.0 to 106.5.  It was reported by the Conference Board right in the middle of the of the forecast range at 105.0. 

The rate on bonds did move lower in response to the Consumer Confidence report. 

 

An unscheduled event moved rates lower even more; the Case-Shiller Home Price Index put out by Standard & Poor’s.  Home prices fell a record 3.2% nationally, compared to the same time in 2006.  This was the largest year-to-year decline in the 20 year history of the Case-Shiller Index. 

Robert Shiller, chief economist for MacroMarkets LLC stated, “The pullback in the U.S. residential real-estate market is showing no signs of slowing down…”  He also pointed out that some of the numbers today came from June.  That was before the most recent, second round of “credit crunch” blow up. 

 

The final event today was the release of the FOMC Minutes.  In short, the minutes showed that the FED is still concerned with inflation.   But it also revealed concern with the current credit crisis. 

For the first time in the last nine meetings that any analysts mentioned the possibility of a future rate cut after reading the minutes.  Several have stated that.

 

All of these events and items added up towards moving rates lower.  The 10-year Treasury closed at 4.524%, which was -.072% from yesterday.

 

SHORT-TERM OUTLOOK [24 August 2007]

 

It looks as if a new trading range for the benchmark 10-year Treasury has emerged.  It appears the ceiling is around 4.900%, maybe a 5.000% flat.  The floor seems to be just below 4.500%. 

 

[The 10-year Treasury note is to interest rates what the Dow Jones industrial Average is to stocks.  Virtually all interest rates trade around this.]

 

Until the trading range is broken, mortgages will stay in the 6.000% to 6.500% range (1% origination).

 

Coming Week: August 27 - August 31, 2007 will be busier than this last week.  Probably the most volatile item will be at week's end with the Income and Spending report on Friday. 

Wednesday, August 29, 2007

Mortgage Bankers Association Purchase Application Index.

Thursday, August 30, 2007

8:30a.m. Initial Jobless Claims For Aug 25 Wk.

8:30a.m. 2Q GDP, Preliminary. Previous: +3.4%.

8:30a.m. 2Q Corporate Profits, Preliminary. Previous: +1.7%.

10:00a.m. July Help-Wanted Index. Previous: 26.

10:00a.m. DJ-BTMU Business Barometer For Aug 11.

Friday, August 31, 2007

8:30a.m. July Personal Income. Previous: +0.4%.

8:30a.m. July Personal Spending. Previous: +0.1%.

9:45a.m. Aug Chicago PMI. Previous: 53.4.

10:00a.m. End-Aug Reuters/U Of Mich Sentiment Index.

10:00a.m. July Factory Orders. Previous: +0.6%.

 

MID-TERM OUTLOOK [28 August 2007]

 

The Mid-Term Outlook for rates is one of those good news / bad news scenarios.  But, the dominant viewpoint for the remainder for 2007 is for flat to lower rates.  (Now that this has been published and distributed, watch for rates to skyrocket.) 

Still, there are a couple dark spots for rates in the next few months. 

 

First, the good news for rates:  But, remember, good news for rates often means bad news for the economy. 

 

A.)  Investor Sentiment seems to have turned.  During most of the 2^nd quarter investors seemed to grab onto any news that would increase rates.  At the same time, they ignored news that would have lead to lower rates. 

That changed in the 3^rd quarter.  On 18 July, FED Chair Ben Bernanke stated that he saw evidence that inflation would be lowering in the last ½ of 2007. 

 

Sentiment on the part of bond investors clearly changed as of 18 July 2007.  On that day the 10-year Treasury traded below the recently established floor of 5.000%.  On the next day, on 20 July, and Monday 23 July the 10-year Treasury closed below that 5.000%.  There is one significant thing about those days; there was a complete absence of significant data.  From that point on, traders and investors have tended to react to any news that would lower rates while ignoring bad news for rates.

 

B.   Inflation has been encouraging.  CPI, PPI and PCE all have been at or bellow expectation.  Inflation is the greatest fear for bond investors.  Better than forecast inflation numbers have brought investors back into the bond market.  As investors return to the bond market that pushed up prices and rates back down. 

 

C.   Consumer Sales numbers have improved over the 2^nd quarter, but not in such a dramatic way to threaten inflation.

 

D.   The housing bubble has burst.  The questions are, will housing continue to decline?  Is it flattening?  Or, is it on the verge of a rebound?  The data when compared to last year has been mostly negative, but there is some evidence indicating the other direction.

 

The housing market problem has created its own cycle. There was a lot of housing activity in the years that ended in 2004.  Economic events are cyclical.  The boom has ended and prices, as well as activity, have falling off.   This has created a perfect storm. 

 

While not the majority, many of the home buyers of the boom could only qualify for a sub-prime mortgage. Clearly, the sub-prime mortgage industry was lending money to buyers that could not repay.  That has resulted in very high default and foreclosure rates.  Those problems have caused Wall to steer money away from the sub-prime lenders.

 

Now with fewer buyers, the housing market is hurting more.  That is causing prices to go lower.   That means more foreclosures when problems occur.  That means more skitterish nervousness from investors in mortgage instruments.  And thus, the cycle continues.

 

Commentary:

Mark Belling of News/Talk 1130 WISN in Milwaukee filled in for Rush Limbaugh, and made a very good point, “The mortgage ‘crisis’ is just like the dot-com bust. The government didn't run to the rescue then, and it would set a dangerous precedent by starting now. This is not being cold-hearted or cruel, as the left would have you believe. This is being responsible and applying common sense to how the market works.”

 

There are also a few concerns for rates in the mid-term and long term:

 

1.)  The US and the global economy are in a recovery.  No it is not as booming as it was during Reagan.  And it is not as strong as it was after the GOP took over congress in 1994.  But the 2.2% Main Stream Media will not report this. 

Eventually, it becomes obvious to even the most casual investor and observer.  That will move rates higher.

 

2.)  In February this blog commented on one inflation concern: corn prices.  The fears were not unfounded, and are still a concern.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

Rates are up only slightly this morning, but not nearly as high as they could have been driven.  This gives further evidence to the idea that bond markets – specifically traders – have a bias towards the low end of the trading range.

 

The market opened with news that Durable Goods Orders were a good deal higher than predicted.  The expectations ranged from 0.9 to 1.5%.  Only one group guessed the 1.5%.  The majority were looking for a 1.0% reading.  Purchases of 747s, washing machines and all ‘big ticket’ items grew by +5.9% in July.   

That should have moved rates by about .050%.  The 10-year Treasury was up around +.015% at 4.683% shortly after the market opened.

 

At 09:00cdt {15:00gmt}, New Home Sales were reported at 870,000.  Analysts were guessing the number to be 820,000 to 830,000.  Given the importance and uncertainty of the housing sector, this should have been an enormous surprise. 

Prices on bonds did slip after the release of New Home Sales, which moved the rate initially up to 4.647%, +.029% in inter-day trading.

 

From that point on the bond market has roughly tracked with the stock market, but even that track demonstrates investor bias to lower rates.  In late morning the 10-year Treasury is +.007% with the rate at 4.625%.

 

SHORT-TERM OUTLOOK [24 August 2007]

 

It looks as if a new trading range has emerged.  It appears the ceiling is around 4.900%, maybe a 5.000% flat.  The floor seems to be just below 4.600%.

 

Coming Week: August 27 - August 31, 2007 will be busier than this last week.  Probably the most volatile item will be at week's end with the Income and Spending report on Friday.  Tuesday's Consumer Confidence may cause rates to move, possibly upward.

Monday, August 27, 2007

10:00a.m. July Existing Home Sales. Previous: -3.8%.

10:30a.m. Aug Dallas Fed Mfg Production Index. Previous: -9.7.

Tuesday, August 28, 2007

7:45a.m. ICSC Chain Store Sales Index For Aug 25.

8:55a.m. Redbook Retail Sales Index For Aug 25.

10:00a.m. Aug Conference Board Consumer Confidence. Previous: 112.6.

10:00a.m. Aug Richmond Fed Manufacturing Index. Previous: 4.

5:00p.m. ABC/Wash Post Consumer Conf For Aug 26.

Wednesday, August 29, 2007

There are no economic indicators scheduled for today.

Thursday, August 30, 2007

8:30a.m. Initial Jobless Claims For Aug 25 Wk.

8:30a.m. 2Q GDP, Preliminary. Previous: +3.4%.

8:30a.m. 2Q Corporate Profits, Preliminary. Previous: +1.7%.

10:00a.m. July Help-Wanted Index. Previous: 26.

10:00a.m. DJ-BTMU Business Barometer For Aug 11.

Friday, August 31, 2007

8:30a.m. July Personal Income. Previous: +0.4%.

8:30a.m. July Personal Spending. Previous: +0.1%.

9:45a.m. Aug Chicago PMI. Previous: 53.4.

10:00a.m. End-Aug Reuters/U Of Mich Sentiment Index.

10:00a.m. July Factory Orders. Previous: +0.6%.

 

 

MID-TERM OUTLOOK [23 August 2007]

 

There are some bright spots, and a couple dark spots for rates in the next few months.  First, the good news for rates:  But, remember, good news for rates often means bad news for the economy. 

 

A.)  Investor Sentiment seems to have turned.  During most of the 2^nd quarter investors seemed to grab onto any news that would increase rates.  At the same time, they ignored news that would have lead to lower rates. 

On 18 July, FED Chair Ben Bernanke stated he saw evidence that inflation would be lowering in the last ½ of 2007.  (He was optimistic for 2008.  See Long-term outlook.)

 

        Sentiment on the part of bond investors clearly changed as of 18 July 2007.  On that day the 10-year Treasury traded below the recent floor of 5.000%.  On the next day, and on 20 July, and Monday 23 July the 10-year Treasury closed below that 5.000%.  What is significant about those two days is the complete absence of significant data.

 

B.   Inflation has been encouraging.  CPI, PPI and PCE all have been at or bellow expectation.  Inflation is the greatest fear for bond investors.  Better than forecast inflation numbers have brought investors back in.

 

C.   Consumer Sales numbers have improved over the 2^nd quarter, but not in such a dramatic way to threaten inflation.

 

D.   The housing bubble has burst.  But, will housing continue to decline?  Is it flattening?  Or, is it on the verge of a rebound?  The data when compared to last year has been mostly negative, but there can always be evidence indicating other directions. 

The housing market problems have a way of creating a cycle.

Clearly, the sub-prime mortgage industry was lending money to buyers that could not repay.  That has resulted in very high default and foreclosure rates.  These problems in the subprime market cause investors to steer money away from the sub-prime lenders.  At the same time, there was a lot of housing activity in the years ending in 2004.  Eventually this high amount of activity came to an end.  All economic events are cyclical and they usually work out this way.  But, when the boom ends prices and activity tend to fall off.  That is the condition we are in the middle of 2007. 

Now, we have the perfect storm.  While not the majority, many of the home buyers were those that qualified for the sub-prime mortgages.  Now with fewer buyers, the housing market is hurting more.  That is causing prices to go lower.   That means more foreclosures when problems occur.  That means more skitterish nervousness from investors in mortgage instruments.  And thus, the cycle continues.

 

There are also a few concerns for rates in the mid-term and long term:

 

1.)  The US and the global economy are in a recovery.  No it is not as booming as it was during Reagan.  And it is not as strong as it was after the GOP took over congress in 1994.  But the 2.2% Main Stream Media will not report this. 

Eventually, it becomes obvious to even the most casual investor and observer.  That will move rates higher.

 

2.)  In February this blog commented on one inflation concern: corn prices.  The fears were not unfounded, and are still a concern.

 

LONG-TERM OUTLOOK [14 June 2007

 

IN the very long term, China has threatened to sell its $900 billion in US bonds.  Doubtful they would do it, but it is a bargaining chip.

 

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

The 10-year Treasury closed flat at 4.618% which was -.002% over yesterday’s close.  It was not always that way in today’s trading session.  At one point the rate on the 10-year Treasury reached the day’s high of 4.681%, +.061%. 

It was not the only economic item out there.  The Weekly Initial Jobless Claims was forecast lower than last week’s 322,000.  Estimates range from 315,000 to 320,000.  322,000 workers filed for first time unemployment insurance.  As an inverse indicator, a higher than expected number is actually bad for the economy, and good for rates.

 

In simple terms, investors renewed their appetite for risk after strong sessions in Asia trading.

 

Later in the day, the CEO of Countrywide Home Mortgage dropped the ‘r’ word.  Stocks lost steam after the chief executive of Countrywide Financial, Angelo Mozilo, told CNBC that the housing market will lead the U.S. economy into recession and that credit market woes were not over.  Money that left the stock market went to the bond market, buoying prices, and moving rates back to yesterday’s close. 

 

It is important to remember, that Countrywide is a company in trouble.  That most likely is clouding his vision.   

 

SHORT-TERM OUTLOOK [23 August 2007]

 

It looks as if a new trading range has emerged.  It appears the ceiling is around 4.900%, maybe a 5.000% flat.  The floor seems to be around 4.500%.  The new floor of 4.500% was first established on 17 August

 

MID-TERM OUTLOOK [23 August 2007]

 

There are some bright spots, and a couple dark spots for rates in the next few months.  First, the good news for rates:  But, remember, good news for rates often means bad news for the economy. 

 

A.)  Investor Sentiment seems to have turned.  During most of the 2^nd quarter investors seemed to grab onto any news that would increase rates.  At the same time, they ignored news that would have lead to lower rates. 

On 18 July, FED Chair Ben Bernanke stated he saw evidence that inflation would be lowering in the last ½ of 2007.  (He was optimistic for 2008.  See Long-term outlook.)

 

        Sentiment on the part of bond investors clearly changed as of 18 July 2007.  On that day the 10-year Treasury traded below the recent floor of 5.000%.  On the next day, and on 20 July, and Monday 23 July the 10-year Treasury closed below that 5.000%.  What is significant about those two days is the complete absence of significant data.

 

B.   Inflation has been encouraging.  CPI, PPI and PCE all have been at or bellow expectation.  Inflation is the greatest fear for bond investors.  Better than forecast inflation numbers have brought investors back in.

 

C.   Consumer Sales numbers have improved over the 2^nd quarter, but not in such a dramatic way to threaten inflation.

 

D.   The housing bubble has burst.  But, will housing continue to decline?  Is it flattening?  Or, is it on the verge of a rebound?  The data when compared to last year has been mostly negative, but there can always be evidence indicating other directions. 

The housing market problems have a way of creating a cycle.

Clearly, the sub-prime mortgage industry was lending money to buyers that could not repay.  That has resulted in very high default and foreclosure rates.  These problems in the subprime market cause investors to steer money away from the sub-prime lenders.  At the same time, there was a lot of housing activity in the years ending in 2004.  Eventually this high amount of activity came to an end.  All economic events are cyclical and they usually work out this way.  But, when the boom ends prices and activity tend to fall off.  That is the condition we are in the middle of 2007. 

Now, we have the perfect storm.  While not the majority, many of the home buyers were those that qualified for the sub-prime mortgages.  Now with fewer buyers, the housing market is hurting more.  That is causing prices to go lower.   That means more foreclosures when problems occur.  That means more skitterish nervousness from investors in mortgage instruments.  And thus, the cycle continues.

 

There are also a few concerns for rates in the mid-term and long term:

 

1.)  The US and the global economy are in a recovery.  No it is not as booming as it was during Reagan.  And it is not as strong as it was after the GOP took over congress in 1994.  But the 2.2% Main Stream Media will not report this. 

Eventually, it becomes obvious to even the most casual investor and observer.  That will move rates higher.

 

2.)  In February this blog commented on one inflation concern: corn prices.  The fears were not unfounded, and are still a concern.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

There was nothing for traders to look at in terms of economic data today.  There were reports that there will be a rate cut in the future by the FED.  But those rumors diminished by this afternoon, causing rates to close higher. 

The 10-year Treasury closed at +.030% to 4.620%.

 

The MBA Purchase Application Index is ignored by bond investors.  But, it can give us clues to the future of the real estate sector. It was a little bit lower than last week’s 464.9, but the four week moving average improved this week.  The weekly number was 441.5.  The 4 week average was 442.6.

 

MID-TERM OUTLOOK [23 August 2007]

 

There are some bright spots, and a couple dark spots for rates in the next few months.  First, the good news for rates.  But, remember, good news for rates often means bad news for the economy. 

 

A.)  Investor Sentiment seems to have turned.  During most of the 2^nd quarter investors seemed to grab onto any news that would increase rates.  At the same time, they ignored news that would have lead to lower rates. 

On 18 July, FED Chair Ben Bernanke stated he saw evidence that inflation would be lowering in the last ½ of 2007.  (He was optimistic for 2008.  See Long-term outlook.)

 

        Sentiment on the part of bond investors clearly changed as of 18 July 2007.  On that day the 10-year Treasury traded below the recent floor of 5.000%.  On the next day, and on 20 July, and Monday 23 July the 10-year Treasury closed below that 5.000%.  What is significant about those two days is the complete absence of significant data.

 

B.   Inflation has been encouraging.  CPI, PPI and PCE all have been at or bellow expectation.  Inflation is the greatest fear for bond investors.  Better than forecast inflation numbers have brought investors back in.

 

C.   Consumer Sales numbers have improved over the 2^nd quarter, but not in such a dramatic way to threaten inflation.

 

D.   The housing bubble has burst.  But, will housing continue to decline?  Is it flattening?  Or, is it on the verge of a rebound?  The data over last year has been mostly negative, but there can always be evidence indicating other directions. 

The housing market problems have a way of creating a cycle.

Clearly, the sub-prime mortgage industry was lending money to buyers that could not repay.  That has resulted in very high default and foreclosure rates.  These problems in the subprime market cause investors to steer money away from the sub-prime lenders.  At the same time, there was a lot of housing activity in the years up to 2004.  Eventually this high amount of activity came to an end.  (All economic events are cyclical and they usually work out this way.)  But, when the boom ends prices and activity fall off.  That is the condition we are in the middle of 2007. 

Now, we have the perfect storm.  While not the majority, many of the home buyers were those that qualified for the sub-prime mortgages.  Now with fewer buyers, the housing market is hurting more.  That is causing prices to go lower.   That means more foreclosures when problems occur.  That means more skitterish nervousness from investors in mortgage instruments.  And thus, the cycle continues.

 

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

Bonds closed better today with the 10-year Treasury -.044% with the rate at 4.590%.  As we thought, there was some volatility in absence of any significant data.

 

In mid-morning the bond market was reacting to a meeting between FED Chair Ben Bernanke, Treasury Secretary Henry Paulson, and Senate banking Committee Chair Chris Dodd.  The meeting was behind closed doors, but Senator Dodd held a news conference afterwards.  He stated that, “The FED gets it and understands” concerns about the credit squeeze.  This gave traders and investors confidence that the FED was taking the credit crunch seriously.

 

The positive rate reaction was short lived.  Richmond FED president Jeffrey Lacker spoke later in the trading day.  This blog thought that he mai9ght cause rates to increase.  He did not disappoint.  Rates were far lower, before Mr. Lacker’s speech.   The rate on the 10-year Treasury moved upward equal to Monday’s closing price. 

 

Shortly after bonds returned to the previous level and closed where at the previous level.

 

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

 

Rates closed lower today.  The 10-year Treasury closed at 4.634% which was -.039% compared to Friday’s closing price.

 

The bond market was not driven by economic data.  There was only one item out this morning; the Leading Economic Indicators.  It was forecast at +0.3% to +0.5%.  It was reported at +0.4%. 

 

The bond market trended with the stock market for the trading day.  Most of the wires credited today’s sell of in the stock market with concerns that the FED’s actions of late last week.

 

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

On Thursday afternoon, 16 August 2007, the FED made a rate change of its discount rate. The Discount window, not to be confused with the Fed Funds rate, is where banks go direct to the Federal Reserve to borrow overnight money. The Fed Funds is overnight lending between banks.

The FED lowered its discount rate from 6.25% to 5.75% in order to add liquidity to the financial markets. More important it was a signal to give the markets confidence. Apparently, it worked. The DJIA recovered and closed mostly flat.

That recovery persisted Friday. The DJIA closed +233.30 or +1.82% to 13079.08. The S&P 500 closed at 1445.94 which was +34.67 or 2.46%

Problem for rates is bonds followed suit. The rate on the 10-year Treasury closed at 4.673% which was .073% over Thursday’s close. As money went to the stock market, it came, at least in part, from bonds.

Traders ignored the only economic item; the preliminary Michigan Consumer Sentiment Survey. Analysts predicted that the index would be 87.0 to 88.5. Consumers surveyed were less optimistic at 83.3.

It is possible that a new floor is being established as this post is being written. The rate on the 10-year Treasury is closing at 4.600% which is -.106% in rate, and the price is +31/32nds. Price and rate always move in opposite directions.

There are so many causes of this rate drop it appears that they all are.

The morning began with news of stocks selling off in Asia. They were concerned with America’s credit crunch. For today, their concern seems to be well founded.

Our bond markets (this is a US blog) opened with bad economic news. Bad for the economy = good for rates. Most of the bad news was not a big surprise in the sense that a new sector of the economy is hurting. For that reason, the good rates MAY be short lived.

The US Housing market is in a slump. Today’s Housing Starts and Building Permits confirm this. The fact that the home construction industry is hurting is not a surprise. The revelation this morning was in how deep the new home slump is.
Housing Starts were expected to be 1.400k to 1.415k. The actual number came in at 1.381k. The less important Building Permits were expected to be 1.39k to 1.420k. Builders filed 1.373k in July.

In addition to low housing, the weekly Initial Jobless Claims number was higher than predicted. As an inverse indicator, a higher number than expected is bad for the economy. Bad for the economy = good for rates. Economists were looking for the jobless number to be 310k to 315k. Last week 322k workers filed for unemployment insurance.

That alone pushed rates down, where they moderated until 11:00cdt {16:00gmt}. Then the forward looking Philadelphia FED came out with their index. Analysts were expected it to be +8.0 to +10.0. It was far lower at 0.0.

After this, the 10-year Treasury dropped driven both by bad news in the economy and bad news in the stock market.
At one point the DJIA was at 12,517.94 which was -343.53. Around the same time, the S&P500 was 1370.60. The stock market recovered after the bond market closed. The DJIA closed at 12847.08. The S&P500 closed at 1411.27 which is +4.57 (that’s right, it was up!). Only tomorrow will tell if bonds reverse course.

Yesterday 15 August post close report:

The rate on the benchmark bond had a bit of a roller coaster ride once the economic information had been absorbed, or better yet, ignored. The rate on the 10-year Treasury did closer lower as it trended with the stock market. The 10-year Treasury closed -.026% with the rate at 4.706%


SHORT-TERM OUTLOOK [26 July 2007]

It is possible that the trading range has been broken. It appears the ceiling is around 4.900%, maybe a 5.000% flat. The floor was starting to be established around 4.700%. Today’s closing at 4.600% may make a new one, if not lower to 4.500%. It will need to trade below the 4.700 “old” floor a few days before a new one is established. If the bond can remain low tomorrow, the new floor may be there.

Friday, August 17, 2007
Mid-Aug Reuters/U Of Mich Sentiment Index. Expected 87.0 to 88.5 Previous: 90.4.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com

The bond market is mostly flat despite rates moving downward in early morning trading.

Much of this morning’s data came in as expected, with one exception that was ignored. So, investors have little to trade on other than flights to safety, or flights from safety.

MarketWatch quoted Tom di Galoma, head of U.S. Treasurys trading for Jefferies & Co. He said, “Investors really aren't looking at the data. At this point, the environment is all about risk reduction."

For the most part, traders and investors have mirrored the activity of the Stock Market’s NASDAQ Index in late morning trading. Early in the morning the benchmark bond was -.025% with the rate at 4.706%. At this time, the 10-year Treasury is at -.010% with the rate at 4.722%.

Many of the economic figures were important, but not far enough from the expectations to influence interest rates.

The most important was the CPI, and the core-CPI. The headline Consumer Price Index was forecast at +0.1% to +0.2%, and prices were reported at +0.1%. The more important core-CPI, which excludes the volatile energy and food costs, was expected to be +0.2% and did exactly that, increased +0.2%.

The New York Empire Index was the surprising number this morning. The index of manufacturing was expected to be 15.0 to 19.0. The NY FED reported their index at 25.1. Obviously it was ignored.

The Industrial Report is very important and can move rates, though it did not today. The Industrial Production was predicted to be +0.2% to +0.4%. It was found to be right in the middle at +0.3%. The Capacity Utilization was 81.9%. This was just above the anticipated 81.7% to 81.8%.

Yesterday 13 August post close report:

The rate on the 10-year Treasury continued to lower as it had in late morning trading. For the most part, bonds trended with the stock market. The 10-year Treasury closed -.046% with the rate at 4.732%

SHORT-TERM OUTLOOK [26 July 2007]

Thursday, August 16, 2007

8:30a.m. Initial Jobless Claims. Expected: 310k to 315k Previous 316k

8:30a.m. July Housing Starts. Expected: 1.40 to 1.415. Previous: 1467

8:30am Buildin Permits Expected 1.39 to 1.420. to Previous 1.413 k

10:00a.m. DJ-BTMU Business Barometer.

12:00p.m. Aug Philadelphia Fed Business Index. Expected 8.0 to 10.0 Previous: 9.2.

Friday, August 17, 2007

Mid-Aug Reuters/U Of Mich Sentiment Index. Expected 87.0 to 88.5 Previous: 90.4.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

Rate Report for today 14 August 2007

The price on bonds opened lower this morning in response to a higher than predicted aggregate PPI. The rate on the 10-year Treasury was +.024% one hour into morning trading, moving the rate to 4.802%.

The rate movement was driven primarily be the Producer Price index (PPI). It was supposed to be +0.1% to +0.5%. The department of Labor posted a +0.6% increase in wholesale costs.

Core-PPI is the more important number; usually. Because it excludes both food and energy it is not as volatile and therefore a better gauge of inflation at the wholesale level. It was predicted to be +.01% to +.02%, and was reported at +.01%.
Because core-PPI was in the range of forecasts it was mostly ignored.

The bond market also ignored the Foreign Trade Balance, also called the International Capital. Most analysts forecast it to be -$61.0B. It was lower at -$58.0B.

The bond market usually ignores both UBS Store Sales and the Redbook Survey. The UBS showed weakness in retail sales. The week-to-week number was -.09% verses the same number last week -0.3%. Year-to-year comparison was +2.3% verses last week’s +3.1%.

The Redbook Survey also demonstrated some weakness from the previous week’s +3.2%. This week’s Redbook was 2.3%.

Bonds reversed themselves in mid-morning as they responded to a sell off in the stock market. Equities are responding to reports from Wal-Mart and Home Depot. Both are DOW components, and both are stating they may see some slowing.

As money moves out of stocks and into bond it brings bond prices higher. When price goes up, rates go down.

The 10-year Treasury is -.032% with the rate at 4.746%. At one point the benchmark bond was -.052% yielding 4.726%.

Yesterday 13 August post close report:

The 10-year Treasury gave up most of the day’s rate increase, closing just +.002% with the rate at 4.778%. Until another explanation, it seems that the benchmark bond trended the same way as the stock market in the afternoon.

SHORT-TERM OUTLOOK [26 July 2007]

It looks as if a new trading range has emerged. It appears the ceiling is around 4.900%, maybe a 5.000% flat. The floor seems to be around 4.700%.

Wednesday, August 15, 2007

8:30a.m. July Consumer Price Index. Expected: +0.1% to +0.2%. Previous: +0.2%.

8:30a.m. July CPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.2%.

8:30a.m. Aug NY Fed Manufacturing Index. Expected: 15.00 to 19.00. Previous: 26.46.

9:00a.m. June Treasury International Capital Flows. No expectations. Previous: $112.6B.

9:15a.m. July Industrial Production. Expected: +0.2% to +0.4%. Previous: +0.5%.

9:15a.m. July Capacity Utilization. Expected: 81.7 to 81.8. Previous: 81.7%.

3:00p.m. Aug NAHB Housing Market Index. Previous: 24.

Thursday, August 16, 2007

8:30a.m. Initial Jobless Claims. Expected: 310k to 315k Previous 316k

8:30a.m. July Housing Starts. Expected: 1.40 to 1.415. Previous: 1467

8:30am Buildin Permits Expected 1.39 to 1.420. to Previous 1.413 k

10:00a.m. DJ-BTMU Business Barometer.

12:00p.m. Aug Philadelphia Fed Business Index. Expected 8.0 to 10.0 Previous: 9.2.

Friday, August 17, 2007

Mid-Aug Reuters/U Of Mich Sentiment Index. Expected 87.0 to 88.5 Previous: 90.4.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

Rates are somewhat higher in mid-morning trading. The 10-Year Treasury is +.026% with the rate at 4.802%.

Primarily, rates are being the bond market’s fears of credit markets crisis being resolved. In short, the panic is ending, as they always do. Rates are also being driven by Retail Sales numbers to some extant.

Both the Retail Sales and the more important core-Retail Sales numbers were within the forecast numbers. Retail Sales were expected to be +0.2% to +0.4%, and were reported right in the middle at +0.3%. Core-Retail Sales – which exclude both auto and food sales – were predicted to be +0.3% to +0.5%, with most predictors at +0.4%. The majority was correct, core-Retail Sales were +0.4%.

The other major item this morning was the Business Inventories report. It was anticipated at +0.4% across the board, and was reported at exactly that; +0.4%.

If all three of these numbers were as expected, how are they impacting rates? First, we will eliminate the Business Inventories report. It did not affect rates.

Many traders were anticipating a lower than expected number on both Retail Sales and core-Retail Sales. Therefore, they were surprised at an as expected return. There was some good news for Retail Sales in the report. Both aggregate and core numbers had last month’s numbers revised upwards. Last month’s aggregate Retail Sales were revised upward from -0.9% to -0.7%. Core-Retail Sales were also revised upward from -0.4% to -0.2%. That revealed that last month was not as bad as thought.

Fortunately, this was not enough of a boost to cause a major sell-off of bonds.

SHORT-TERM OUTLOOK [26 July 2007]

It looks as if a new trading range has emerged. It appears the ceiling is around 4.900%, maybe a 5.000% flat. The floor seems to be around 4.700%.

Tuesday, August 14, 2007

7:45a.m. ICSC Chain Store Sales Index.

8:30a.m. June Trade Deficit. Expected; $61.0B Previous: $60.04B.

8:30a.m. July Producer Price Index. Expected: +0.1% to +0.5% Previous: -0.2%.

8:30a.m. July PPI, Ex-Food & Energy. Expected: +0.1% to +0.2%. Previous: +0.3%.

8:55a.m.Redbook Retail Sales Index.

5:00p.m. ABC/Wash Post Consumer Conf.

Wednesday, August 15, 2007

8:30a.m. July Consumer Price Index. Expected: +0.1% to +0.2%. Previous: +0.2%.

8:30a.m. July CPI, Ex-Food & Energy. Expected: +0.2%. Previous: +0.2%.

8:30a.m. Aug NY Fed Manufacturing Index. Expected: 15.00 to 19.00. Previous: 26.46.

9:00a.m. June Treasury International Capital Flows. No expectations. Previous: $112.6B.

9:15a.m. July Industrial Production. Expected: +0.2% to +0.4%. Previous: +0.5%.

9:15a.m. July Capacity Utilization. Expected: 81.7 to 81.8. Previous: 81.7%.

3:00p.m. Aug NAHB Housing Market Index. Previous: 24.

Thursday, August 16, 2007

8:30a.m. Initial Jobless Claims. Expected: 310k to 315k Previous 316k

8:30a.m. July Housing Starts. Expected: 1.40 to 1.415. Previous: 1467

8:30am Buildin Permits Expected 1.39 to 1.420. to Previous 1.413 k

10:00a.m. DJ-BTMU Business Barometer.

12:00p.m. Aug Philadelphia Fed Business Index. Expected 8.0 to 10.0 Previous: 9.2.

Friday, August 17, 2007

Mid-Aug Reuters/U Of Mich Sentiment Index. Expected 87.0 to 88.5 Previous: 90.4.

LAST FRIDAY, 10 August.

Prices and rates were little changed on treasuries after US and foreing central banks injected billions of dollars into banking systems for a second day in an effort to boost liquidity and calm fears of a global credit crunch.

The US’s own Federal Reserve on Friday injected a total of $38 billion into the markets in three steps.

The 10-year Treasury closed at 4.776% on Friday.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

The stock market closed much lower today; down -387.18 on the Dow Jones Industrial Average. That moved the DJIA -2.83% to 13270.68 points. The broader based, and therefore more accurate S&P 500 closed the day -44.40 (-2.96%) to 1453.09. The Main Stream Media will make that the headline story.

Yesterday, the Stock market was up almost 150 points on the DJIA. Yesterday, the 2.2% Main Stream Media billed it as a “sea-saw stock market” (Fox Radio News). Others described yesterday as another day of volatility, or they said that the stock market moved again.

When one looks at yesterday’s chart it was clear it was almost straight up. When one looks at the last week’s chart, it was clear it was almost straight up. That straight up movement was almost universally reported in neutral terms by the MSM.

On two days, the 2.2% MSM discussed the actual direction. Both those days it was dire distress and disaster on Wall Street. Today’s reports will be one of those days when the headline will be, “another losing day on Wall Street”. Two days of down trading and the world is coming to an end.

What the 2.2%s don’t tell you, Today’s big sell off, put the S&P 500 way back to where it was – one has to look way way way back to Tuesday of last week. WOW!

Tell me again that the 2.2% MSM is objective.

TODAY’s bond market activity:

The market opened with rates much lower. In this blog’s opinion, the bond market was moved by two items: The Primary mover was of course the continued concern about the sub-prim mortgage industry. It is also this blogs belief that this morning’s weekly Initial Jobless Claims moved the bond market to at least some degree.

It was predicted that 310k to 311k employees would file for first time unemployment insurance. This week, 316k workers filed, and last week’s 307k number was revised upward to 309k. As an inverse indicator, both of these higher numbers are bad for the economy. But, bad for the economy = good for rates. It is hard to imagine that these two numbers had no impact whatsoever on the thinking of bond traders and investors.

The biggest item no doubt was persistent worries about the housing market and its impact on the economy.

This morning’s Wall Street Journal online had this article, written by; By GREGORY ZUCKERMAN in New York, DAVID GAUTHIER-VILLARS in Paris and KATE KELLY in New York

“Several big market players thought to be insulated from the subprime meltdown have been hit hard in recent days, leading investors to wonder who might be next.

News of losses started early yesterday in Paris with revelations that the French bank BNP Paribas, which only last week said its exposure to the troubled subprime mortgage market was limited, was freezing three investment funds once worth a combined $2.17 billion. The funds played in the U.S. market for home loans to borrowers with shaky credit -- but only in areas considered high-quality, or investment grade. That those investments are flailing highlights how even the best-rated assets are coming under pressure.”

The Wall Street Journal continued with this summary;

• What’s Happening: Losses are emerging in more funds, leading investors to wonder who will be next.

• The Latest Victims: BNP Paribas stopped trading in three funds. Losses mounted at a Goldman fund, the second in as many days. And a group of funds known as market-neutral, which seek to do equally well in falling or rising markets, have been increasingly hit, as many seek to close out positions at the same time.

• The Fallout: The news unnerved already-jittery markets, helping to push blue-chip shares down 2.83% yesterday.

The 10-year was trading -.078% with the rate at 4.782% shortly after the opening. Around 08:10cdt {13:10gmt, 09:10edt} the 10-year Treasury was trading closer to 4.748 or -112%. Soon after, profit takers moved in and the rate stabilized. It closed right near where it opened. The 10-year Treasury closed -.078% with the rate at 4.782%, +20/32nds in price.

SHORT-TERM OUTLOOK [26 July 2007]

It looks as if a new trading range has emerged. It appears the ceiling is around 4.900%, maybe a 5.000% flat. The floor seems to be around 4.700%.

That floor COULD be tested tomorrow. Tomorrow morning could continue to be good for rates. After bond trading ended today, Countrywide Home Mortgage reported that they, and the entire mortgage industry were facing "unprecedented disruptions". These disruptions could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said.

Commentary: Regarding last week’s lackluster private sector job growth.

Point #1: Much of the disappointment was in the service sector; the vast majority in the Retail and restaurant sectors.

Point #2: The ISM-Services also demonstrated slowing in retail and restaurant.

Point #3: The retail and restaurant areas are where most of the minimum wage jobs are.

Liberals in congress recently raised the minimum wage. Whenever they do that, some jobs become economically unfeasible. A grocery store may find value in hiring baggers at $5.15, but not at $7.25 an hour.

Is it any wonder this causes a slowdown in job growth in these fields?

‘Magic-wand’ economics seldom work. This feel good, vote getting legislation ultimately hurts those it was supposed to help; hamburger flippers. But, was it really those just starting out that minimum wage supporters were trying to help? More likely, it was the power hungry, old money liberals like Ted Kennedy, Jay Rockefeller, John Kerry and Al Bore-Gore that the law was to help.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

 

Bond prices fell today, pushing rates higher. It was not economic data that pushed rates. There was not much of it.

The Wholesale Inventories Report was higher than expected. But, as an inverse indicator that should have driven rates lower. Wholesale Inventories were expected to be +0.4%, but were +0.5%.

The treasuries were driven mainly by the global stock markets-including US – that were fueled in part by the Federal Reserve's statement yesterday that the U.S. economy is likely to weather a housing slowdown

There was less demand for the safety of US government debt as stocks staged a recovery. The recovery in equities occurred after the Fed's rate-setting committee said in a statement that job growth and a ``robust global economy'' may help the U.S. withstand the rout in subprime mortgages.

The FOMC Policy Statement included a recognition that the outlook for economic growth is weaker. This was a modification of the central bank's recent solitary focus on inflation. But it was a disappointment to those in financial markets who hoped the Fed would more clearly hint at the possibility of a rate cut in the next few months that suggests a bias toward higher interest rates, which can keep inflation in check as they damp spending by making borrowing more expensive. But the Fed added that "the downside risks to growth have increased somewhat" -- meaning it sees a slightly higher probability of weaker economic growth.

Measures of inflation that exclude food and energy have edged down, the Fed said, but a "sustained moderation in inflation pressures has yet to be convincingly demonstrated," an identical description to its June statement.

That implies it would take one of two things for the Fed to move to a neutral statement -- where the risks to growth and inflation are nearly in balance -- and thus level the odds of a rate cut or increase: either evidence that the drop in inflation will be sustained, or that there is greater risk to economic growth.

There was also fear that there may be an upcoming trade war. Bloomberg’s Elizabeth Stanton and Agnes Lovasz quoted a report in the U.K.'s Daily Telegraph that China, the second-largest foreign holder of U.S. government debt, is prepared to sell its holdings in the event of U.S.-imposed trade sanctions

The two writers went on to say, “China suggested it will sell holdings of Treasuries should the U.S. impose trade sanctions to force a yuan revaluation, the Telegraph reported, citing two Chinese officials. Calls by Bloomberg News to a press official at China's State Administration of Foreign Exchange weren't answered.”

The bond market opened with rates higher. Shortly after it started the 10-year Treasury was +.064% to 4.807%. At 08:30cdt {13:30gmt} the bond market took its cue almost completely from the stock market. (In the first few hours it most closely resembled the NASDAQ. After then it followed the broadly based S&P500).

The 10-year Treasury closed +.117% with the rate at 4.860%.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com