Yesterday, 11 July 2007

According to MarketWatch, “A couple of Fed officials (Fed Governor Kevin Warsh and Philadelphia Fed President Charles Plosser) addressed concerns over mortgage-related debt by saying that the economy and the markets were well disposed to absorb the negative impact of the situation.”

The comments by these two FED officials is good news for the economy overall, but that was bad for rates. The 10-year Treasury closed +.042% with the rate at 5.080%. The price – which moves in the opposite direction of rate – was -15/32nds to 95-15/32nds.

TODAY

Treasury prices move lower Thursday in mid morning trading. This price move sent yields higher. Investors overlooked U.S. jobless data and fixated on the potential ramifications of subprime credit woes highlighted by a spike in foreclosures in June.

The weekly Initial Jobless claims were lower than expected at 308k. The market was looking for 312k to 315k. This lower than expected number is good for the economy; which is bad for rates.

The Trade Balance was as forecast at -$60.0B.

The concerns over foreclosures are pushing rates upward. The 10-year Treasury is +.031% with the rate at 5.111%.

What is up for tomorrow.

Friday opens with the Retail Sales Report, and Import Prices. Two other items are out in the morning. All of Friday’s item can move rates.

Total Retail Sales are predicted to be 0.0% to +0.3%, much lower than last month’s 1.4%. Core Retail sales which exclude food and auto are forecast to be +0.2% to +0.4%, also lower than last month’s 1.3%. Those low numbers are reasonable given the low trends we have seen in the UBS Store Sales, Redbook Survey, and store sale reports.

Import Prices are an important measure of inflation and the bond market does pay attention to them. The are expected to be +0.6% to +0.7%.

About two hours into trading sees the Business Inventories report and the prelim-Michigan Consumer Sentiment Report. Business Inventories are anticipated to be slightly lower than last month’s +0.4% at +0.3%.

The U of Michigan publishes an index of how consumers feel about the economy. Analysts are expecting it to be 82.5 to 86.0; roughly straddling last month’s 85.3.

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