YESTERDAY’S CLOSE 08 MARCH

Rates closed better than the where at our mid-morning, but were still higher than Wednesday’s close. The tic on Treasury rates moved lower Thursday afternoon with the 10-year Treasury closing +.012% to 4.509%.

FRIDAY 09 MARCH 2007

Rates are much higher in response to a lower than expected Unemployment Rate. Unemployment is an inverse indicator like the weekly Initial Jobless Claims. A low number is good for the economy. Good for the economy = bad for rates.

Unemployment was predicted to be 4.6% to 4.7%; the Labor Department reported 4.5% of workers are looking for jobs.

The remaining items came in as expected. Payrolls are the other highly important number and grew by 97,000, within the 90k to 110k expected.

Average Hourly Earnings were +0.4%, far above last month, but within the expectations of +0.3% to +0.4%. Average Workweek was a bit lower than last month’s 33.8 with this month reporting 33.7 which was in the forecast of 33.7to 33.8 hours.

The Trade Balance Report is outside of the Employment Situation Report, but was within expectations. Economists expected that the Trade Deficit would be $59.0b to $60.5b, with the actual number at $59.1b.

Wholesale Inventories most likely have been ignored by bond traders. If it had been noticed, it would have helped with rates. Wholesale Inventories were +0.7%, higher than the predicted -0.5% to +0.1%. Like Unemployment, this is also an inverse indicator. Coming in far higher than predicted should have brought rates lower than expected. It is hard to know what is in the mind of all investors and traders, so it is possible that it was discounted.

The dominate number was the lower than expected Unemployment Rate. Bond traders and investors are beginning to question it the FED will cut rates anytime soon. Interest-rate futures suggested a 30 percent likelihood the Fed will cut rates by July, down from 66 percent yesterday. Bond yields this week had dropped to the lowest since December as investors sought refuge from declining equities.

This concern has pushed rates upward. The 10-year Treasury is +.082% with the rate at 4.591%.

NEXT WEEK

We could have some volatility on Monday afternoon with the Treasury Department’s Treasury Budget Report. Until that release at 13:00cdt {18:00gmt} we may see some lowering of rates as bargain shoppers come in, and traders sober up from today’s selling.

We will blog more tomorrow afternoon.

We VERY VERY cautiously recommend floating.

[Publisher’s note: With the exception of Saturday & Wednesday, we will publish only one of the outlook sections each day on a rotating basis, none on Friday. SHORT-TERM OUTLOOK (on Monday) attempts to forecast and discuss up to the next 30 days. MID-TERM OUTLOOK (on Tuesday) looks forward from 15 to 90 days, most often 30 to 90 days. The Mid-term has the most accurate predictions, just like the weather. The LONG-TERM OUTLOOK (on Thursday) will extend out the next six months, maybe one year. When we change an outlook section we will embolden the date and heading.]

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