The bond market closed with rates at a one month high. The rate on the 10-year Treasury closed at 4.756% with the rate at+.048%. Rates were driven by two economic items and some comments by FED chair Ben Bernanke.

Federal Reserve Chair Ben Bernanke said Thursday that the slowdown in the housing market probably has further to run, but it won't have a significant impact on the rest of the economy. "We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system," Bernanke said at a conference on bank structure at the Chicago Federal Reserve Bank.

This is a double whammy for most readers of this blog. First it means we may still have some slowing in the housing market. Second, it indicates that the bond market will ignore the weakest sector of the economy. That will not be good for rates.

The market opened with a lower than anticipated weekly Initial Jobless Claims. Economists were expecting 310k to 315k report by the labor department. This is an inverse indicator. A lower number than expected is good for the economy. Good for the economy = bad for rates. Today was a case in point. 293k workers filed for first time unemployment insurance.

Many analysts were also crediting the Philadelphia Fed Survey. The Federal Reserve Bank of Philadelphia said its index of manufacturing sentiment rose to 4.2 from 0.2 in April and March. It's the highest reading since January. Readings over zero indicate expansion. Some economists were expecting the index to rise slightly from 1.0 to 3.0. A few economists hit the number dead on at 8.2 to 8.5.

We are not of the belief that the Philadelphia Fed had much of an impact on rates. The 10-year had pretty much settled at its current level by the time of its release at 11:00cdt {16:00gmt}.

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