Rates are improving today based on some of the economic data, as well as in response to weakness in the equity markets.

Price on bonds rose at the opening, moving rates lower initially in responce to a lower than predicted Durable Goods Orders. Estimates were for a 1.5% to 2.5% reading. There was only one estimating the 1.5%, the remainder were looking for a 1.7 to 2.5%. There was a 1.4% growth rate in big ticket items like big screen televisions and Boeing 787s.

This caused the 10-year treasury's rate to drift lower -.067% to 4.837% within a half an hour after the Durable Goods Orders release.

The bond market ignored the weekly Initial Jobless Claims report. The Labor Department reported that 301,000 workers filed for first time unemployment insurance last week. That was below the forecast 310k to 312k. As an inverse indicator this should have rates to go up. There was no evidence of that so it clearly was overshadowed by Durable Goods orders.

It appears that the bond market also ignored the lower than predicted New Home Sales. Economists were looking for a 890k to 900k reading. Only 834k newly constructed homes were sold in June. Bonds remained mostly flat in light of this number.

Bonds also, and typically, ignored the Help-wanted Index. There were only two expectations, and both were looking for a match of last month’s 27.0. It was at 26.0 this morning. Again, bonds remained mostly flat in light of this number.

What was clear; after 10:00cdt {15:00gmt}, is the bond market followed the stock market’s cue.  The popular Dow Jones Industrial Average has fallen -386.04 to 13,399.03 in mid-afternoon.  The more accurate S&P 500 is at 1469.63 which is -48.46 popints lower.
Most analysts are crediting the New Home Sales item that the bond market ignored. Stock investors sold shares and moved the money over to bonds. This additional demand caused the price on bonds to rise, and rates to drop.

Since that time, the 10-year Treasury has moved to 4.783%, which is -1.21% lower than yesterday’s close.

This blog’s newest feature is the BoxGuess. The BoxGuess did not work on any item today.

The BoxGuess is a short-term technique to see if the range of expectations will be above or below the actual. The methodology is a secret and will not be made public.

Warning: The BoxGuess is theoretical at best. The author is using this blog to test the effectiveness of the BoxGuess. You can do the same. If you use this blog to to test the effectiveness of the BOXguess you do so at your own risk.

SHORT-TERM OUTLOOK [26 July 2007]

A new trading range has emerged! We broke through the old won on 20 July and we seem to be heading towards a new floor. It is this blogs guess that the floor will be established around the 4.750% level. We will find out soon since we are approaching that level today. A new ceiling will have to establish itself after a floor is determined

There was a trading range around the 5.100% level on the 10-year Treasury. The floor was around the psychological 5.000%. The ceiling was just above the Fed Funds rate at 5.250%. The recent high occurred on 12 June at 5.297%. That trading range was tested on 18 July 2007. The Trading Range was broken on 20 July with the 10-year Treasury closing -.076% with the rate at 4.952%.

Unlike last week, this Friday has some valuable numbers out.

This will be the first read of last month’s GDP and the attached Chain Deflator. GDP is anticipated to be +3.2% to +3.6%.

The attached measure of inflation called the Chain Deflator is not as widely watched by analysts, but it is by the bond market. If it comes in different than the 3.4% to 3.6% range of predictions, the bond market will respond accordingly.

The U of Mich. Consumer Sentiment Report is also published. It is estimated at 91.0 to 92.4.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com