Sorry, Friday’s blog did not get posted again. Anyone want to answer why?

Here is what happened on Friday 03 August 2007.

It appears that the trading floor of 4.750% is being tested already. In fact it was established for such a short period of time, it could be said that it was not a floor.

The morning began with depressing news for the economy, but good for rates.

The Payroll Growth was below the expected amount of 135k to 150k. Last Wednesday the ADP Job Index predicted it would be lower (kind of) and it was at 92,000.

Unemployment was at the high end of expectations at 4.6%. It was expected to be 4.5% to 4.6%.

The other two parts of the Employment Situation were as forecast. Hourly Earnings were predicted to be 33.8 to 33.9. The average time-clock puncher worked 33.8 hours a week. Their hourly income continued to grow at +0.3% last month; above inflation.

Even with this bad news the bond market did not react as expected. The 10-year Treasury was only -.002% as the news was released. Within 40 minutes of the Employment Situation report the 10-year Treasury was +.013% to 4.766%; opposite direction it should have been.

It is not easy to explain why. One theory, the low job growth was predicted by the ADP Index. There are two problems with this idea. The ADP does not look at changes in government payrolls. That was the weakest area of fob growth. Second, the bond market did not respond to ADP. It is always possible that traders sat out after the ADP came out, waiting to see what happens Friday.

Traders and Investors eventually were moved by the ISM-Services. Experts were looking for a 58.0 to 59.5 reading. They were shocked by the 55.8 reported.

This convinced traders that they could believe the bad news in the job market. The buyers got off the sidelines and caused the price to go up. This moved the yield -.053% to close at 4.700%.

Not as low as it could have been, but still good considering it broke through a floor.

TODAY; Monday 06 August 2007

There was no data today. The bond market did some minor movement for most of the day; with rates going from -.007% to -.018% and back and forth.

A little more than one hour before trading ended, the bond market began some selling as traders took their profits. It appears that a small rebound in the stock market was the impetus for the change in bonds direction

The 10-year Treasury closed the day +.031% with the rate at 4.731%

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com