Rates are quiet this morning. The 10-year Treasury is +.002% with the rate at 4.636%. It has been trading no more than a +\-.010% from yesterday’s close of 4.634% all morning. The bond market is waiting on the FED’s FOMC meeting this afternoon.

The FED is expected to announce its decision at 13:15CDT {18:15GMT}. It is widely believed that the FED will keep the very short-term Fed Funds rates at 5.25%. That is not the item that will affect rates this afternoon. The only ‘experts’ that will pay attention to the Fed Funds rates are anchors and business reporters in the Main Stream Media. The important item will be the summary of the meeting.

The summary is the where the FED governors indicate which way they are leaning towards rates for the future. That is called the bias. The problem is, is that the members of the FOMC are good poker players. (Some actually are recreational poker players.) They never want to show too much of their hand. Former FED-Chair Alan Greenspan once said, “If anyone here understands what I am saying, I must have misspoken.”

They are also very good at using what is called ‘Fed-speak’, Greenspan’s predecessor, Paul Volker was asked the question, “Are rates going up, down, or staying at this level?” Volker’s response was, “Yes”.

There is always an amount of up and down movement as analysts try to wade through the Fed-speak and the double talk in the Summary. In the end, the bond market chooses a direction and follows it.

Is that direction up, down, or level. The answer is most likely, yes. The rate of growth in the economy is slowing. At the same time inflation has not slowed down yet. (We will post a long-term outlook on this soon.) Still, we think there is the likelihood that the FEDs bias will be towards lowering rates. Bernanke has often said that he still sees inflation, but there are sings it could slow soon.

We will post more on the FOMC, and tomorrow’s events this evening.

In other news, the weekly MBA Purchase Application Index was up again this week. Last week the Mortgage Bankers Association reported the index at 427.3, with the 4-week moving average at 411.95. This week the index was 438.3 with the 4-week average going up to 418.28.

MID-TERM OUTLOOK [09 May 2007]

There may be a few problems for rates for this quarter.

1.) The housing bubble has ‘burst’. The question is, will housing continue to decline? Is it flattening? Or, is it on the verge of a rebound? The data over the last few months has been a resounding maybe to all three. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

2.) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the last FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

3.) In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. That will impact not just corn flakes, but pop/soda, beef, and pig, just about anything we eat.

None other than the Western Hemispheres worse dictators agrees with us. (For once

He understands economics.)

An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.

Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.

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

Bonds have been better most of this morning. The 10-year Treasury is -.010% with the rate at 4.626%. That rate is higher than it was at the opening.  At 07:30cdt {12:30gmt} the 10-year Treasury was -.022% with the rate at 4.614%.

There is the probability that the bond market is reacting to the FOMC Policy Announcement tomorrow afternoon. Traders are taking position to hedge bets, or in many cases make their bet.

At the same time, the bond market may have been responding to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage.  Given the current oversupply of houses, verses the very low number of buyers, we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammySales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006.
Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

Wholesale Inventories were at the low end of expectations at +0.3%. As it was as expected, it did not affect trading on the bond. The intra-day trading chart agrees with that interpretation.

UBS & Redbook retail Sales numbers are showing that the consumer is slowing spending. That could be good for June’s Retail Sales numbers.

TOMORROW, 09 May 2007.

The schedule of data being release is very light. The market’s opening sees the release of the weekly MBA Purchase Application Index. Last week the 4-week moving average moved upwards. Hopefully for readers of this blog, that trend will not only continue but compound.

Of course, the big news on Wednesday will be the FOMC Policy Announcement at 13:15cdt {1:15pm, 18:15gmt}. It is our guess, and most everyone’s, that the FED will leave its very short term rates at the current level of 5.25%.

The question will be which way the bias goes. The bias is simply the FEDs guess as to the mid & long term direction they will probably move the Fed Funds rate. The rate of growth in the economy is slowing. At the same time inflation has not slowed down yet. (We will post a long-term outlook on this soon.) Still, we think there is the likelihood that the FEDs bias will be towards lowering rates. Bernanke has often said that he still sees inflation, but there are sings it could slow soon.

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

The members of the religion of global warming are famous for statements like, "This is the worst (insert weather event here) ever (or insert length of time here).  If the length of time does not seem long, simply leave length of time out.
Case in point; according to the religion of global warming, 2005 had more hurricanes than ever!  NOAA (nicknamed Noah) never used all the names available, and never had to use the Greek letters."  That is true.  What they don't mention is how recent NOAA has been naming hurricanes.  It is less than 50 years.  If the age of weather can be equated to a day, 50 years is less than a second.

I'll give the religion of global warming a debating point for free.   The city of Greensberg Kansas has NEVER been destroyed by a tornado in its entire history!  SEE, global warming is destroying the earth.

Rates were pretty flat at this mornings opening, and have remained flat. There are no economic events while the bond market is open. The market will probably remain flat.

There are some Treasury auctions scheduled all Monday. Treasury auctions occur every Monday. It appeared the 10:00cdt {15:00gmt} may move rates higher, but it was a temporary and small upward shift.

Prior to the 10:00cdt {15:00gmt} 4-week T-Bill auction the 10-year Treasury was at 4.628%, which was down -.012% from Friday's close.  It went up just over Friday to be +.002%.  Currently the 10-year Treasury is -.002% with the rate at 4.638%.

Consumer Credit is published at the same time as the market closes. It is predicted to be +$4.0B to +$5.0B. Since it is published after the market closes it is clear that it will not influence rates. What is surprising, even though it is a very important item, it almost never moves rates the next day.

TOMORROW, 08 March 2007

Wholesale Inventories are released at 09:00cdt {14:00gmt}. This is an inverse indicator. A number higher than the expected +0.3% to +0.5% will be seen as bad for the economy. Bad for the economy = good for rates. The same holds true if it is below the predictions.

There are other figures out, but none have predictions. Regardless, the bond market will probably be quiet in anticipation of the FOMC meeting Wednesday afternoon. (See short-term outlook.)

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

SHORT-TERM OUTLOOK [07 May 2007]

Next week is a decent week in terms of the importance of economic events and the affect of rates. Monday is light in data. Tuesday is when the Wholesale Inventories are published. Thursday is heavy with international trade data as well as the Treasury Budget. Finally, Friday contains the Retail Sales numbers and the Producer Price Index figures.

The heaviest day will be Wednesday with the FOMC Meeting and the Policy statement at 13:15cdt {1:15pm, 18:15gmt}. It is our guess, and most everyone’s, that the FED will leave its very short term rates at the current level of 5.25%.

The question will be which way the bias goes. The bias is simply the FEDs guess as to the mid & long term direction they will probably move the Fed Funds rate. The rate of growth in the economy is slowing. At the same time inflation has not slowed down yet. (We will post a long-term outlook on this soon.) Still, we think there is the likelihood that the FEDs bias will be towards lowering rates. Bernanke has often said that he still sees inflation, but there are sings it could slow soon.

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

The economic data this morning is pointing strongly towards a slowing economy.

Two items came in as expected. The more important of the two that were as thought, was the Unemployment Rate at 4.5%. This matched predictions across the board, and was higher than last month’s 4.4%. Average Workweek was also as predicted at 33.8 hours per week. Like Unemployment, this is also below last month’s 33.9.

Of the two outside of expectations; Payrolls and Hourly Earnings, Payrolls is by far the more important, and moves rate more often.

Payrolls were forecast to grow by 100k to 120k. The Labor Department reported that only 88k jobs were added to the economy.

The Hourly Earnings report was also below its anticipated growth of +0.3% to +0.4%. It was reported in at +0.2% after adjusting for inflation.

This has move rates lower, though not as low as they potentially could, or should have. The 10-year Treasury is -.034% with the rate at 4.640%.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

SHORT-TERM OUTLOOK [04 May 2007]

Next week is a fairly decent week in terms of the importance of economic events and the affect of rates. Monday and Wednesday are days that are light in data. Tuesday is when the Wholesale Inventories are published. Thursday is heavy with international trade data as well as the Treasury Budget. Finally, Friday contains the Retail Sales numbers and the Producer Price Index figures.

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

This is our 3^rd day of rate increases; assuming rates continue in this morning’s trend. The 10-year Treasury is +.032% with the rate at 4.678%.

Rates opened a bit lower before the market had much of a chance to look at the all the data. Most likely its opening was a response to a far lower Unit Labor Costs.

The market reversed course soon into trading as it responded to both a drop in Productivity and more important a drop in the weekly Initial Jobless Claims. A lower Jobless number may mean we could see an improved job market tomorrow.

The Labor Department reported 305,000 workers filed for unemployment insurance. That was below the 320,000 to 325,000 expected Initial Jobless Claims. That moved the rate on the 10-year Treasury +.016% with the rate at 4.662%.

The market was also responding to Productivity at +1.7%. That was higher than the +0.8% to +1.1%. But, it was lower than last quarter’s revised +2.1%. According to some analysts the drive in bond prices was due to productivity coming in lower in quarter to quarter comparison, while ignoring expectations. That is a rare occurrence.

At 09:00cdt {14:00gmt} the bond market moved rates even higher to their current level. The market responded to a higher than anticipated ISM-Services. Analysts expected ISM-services to be 53.0 to 54.0. The institute of Supply Managers reported its non-manufacturing index at 56.0.

Two items that were ignored by the market were the Monster Jobs Survey at 186. This was higher than last month’s 177. That could be a problem tomorrow.

The DJ Business barometer dropped from the last report of -0.1% to -0.2%.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

TOMORROW, 04 May 2007

Friday will be a busy day as the market opens with the very important monthly Employment Situation Report. The Employment Situation Report consist of four items; Average Workweek, Hourly earnings, Non-Farm Payrolls and the Unemployment Rate.

The first two; Average Workweek and Hourly Earnings are not seen as too important, and seldom surprise rates. Average Workweek is expected to equal or nearly equal the last few months 33.9 hours. Expectations range from 33.8 to 33.9. Hourly Earnings are expected to be at or higher than last month’s +0.3% at +0.3% to +0.4%

The next two items are headline items and VERY important. Payrolls are expected to grow far less than last month’s 180,000. Predictions are for a Payroll growth of 100k to 120k. We aren’t sure it will be that much lower.

Unemployment is forecast to be fairly close to last month’s 4.4%. Economist’s forecasts are unanimous at 4.5%. This has surprised markets lately coming in lower than forecast.

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

Ten minutes into trading, the bond market corrected yesterday’s gains lowering the very small rate increase that we saw at Tuesday’s close. Rates on the 10-year Treasury hovered around -.012% with the rate at 4.630% in the first 1.5 hours of trading.

The early morning activity was driven by a low ADP Employment Index. In fact, it was the lowest in four years. No analysts normally post predictions for this item, and it only occasionally affects rates. However, when ADP is far lower (or higher) than the previous month it can direct rate movement. That was the case this morning.

ADP’s survey indicated only 64K jobs were added to the private sector. Last month 106K private sector job growth was estimated by the ADP.

According to theory, Friday’s Payroll Growth will be at the low end of expectations. Problem is, ADP’s predictive power has been sporadic at best.

In other job related news, the Challenger Job Survey reported corporate layoffs of 70,672 last month. This had little to no impression on interest rates.

At 09:00cdt March’s Factory Orders were published. Economists were predicting growth at 1.0% to 2.4%. The market was surprised by a growth rate of 3.1%. That caused bonds to reverse course. Shortly after Factory orders came out the 10-year Treasury rate advanced to 4.6525, which was +.010%. Not a beg move in inter-day trading, but a .022% is a modest gain in intra-day trading.

We can report one win-win area. The weekly MBA Purchase Application Index posted a large gain. The Mortgage Bankers Association posted its purchase application index at 427.3. That is the highest weekly number since 20 December. The 4-week moving average – the more important number – also moved upward to 411.95, the highest since 13 January.
This is good news for most of the readers of this blog. These numbers show health in a sector of the economy that has been ailing. While the real estate sector is still in ICU, this news was a much needed sigh of life. It is also very important news that the bond market apparently ignored today’s news. If it had noticed, the bond market would have moved upwards.

The 10-year Treasury closed +.004% with the rate of 4.646%.

TOMORROW, 03 May 2007

The most important economic item will be the quarterly Preliminary Productivity report. It is a hard number to gauge making it hard to predict. It can be far outside of the predictions. Expectations are for an 0.8% to 1.1% increase. This is an odd indicator in that it can be both good for the economy and good for rates at the same time.

A portion of the Productivity report is the Unit Labor Cost. This is very important to bonds. It gives us a very accurate picture of the wage-price-spiral and the inflationary direction on the factory floor.
While important for bonds, the stock market usually ignores Unit Labor Cost. Because it is not important for stocks only one of our sources tries to estimate where it will come in at. They are looking fro a 3.6% increase. That is far lower than last quarters 6.6%. That high reading did move rates!

The weekly Initial Jobless Claims is also published at the markets opening. Last week 321K employees filed for first time unemployment insurance. Predictions are 320K to 325K will file this week. As an inverse indicator a higher than forecast number is bad for the economy. Bad for the economy = good for rates and vice versa.

At 09:00cdt {14:00gmt} ISM – Services comes out. It is forecast to be 53.0 to 54.0. Last month the Institute of Supply Managers reported Services Index at 52.4. ISM and ISM Service can both occasionally impact rates.

Monster Job Survey, the online equivalent of the Help-Wanted Index will be published before the markets open. The Dow Jones Business Barometer

Neither Monster nor Business Barometer is noticed often by the bond markets.

Friday’s Employment Situation Report May overshadow tomorrow’s data, unless there are big surprises.

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

HAPPY COMMIE DAY
HAPPY BE A RUDE GUEST DAY.

COMMENTARY: It is amazing that people will come and live in a foreign country and attempt to dictate to that country the laws of that country. It is especially shocking when many of those immigrants are not invited!!

TODAY:

Rates are rising this morning as the bond market is focusing on the forward looking manufacturing items and ignoring the housing sector. Rates opened moving lower. Bonds did trade as low as 4.608% which was -.022% from yesterday’s close. That reversed direction as the economic news came out.

The potentially biggest rate mover had little influence this morning. Fed Chair Ben Bernanke was in Montana.  He gave a speech titled; "Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy". His speech, more theoretical in nature, did not impact rates. Paging through the 10 pages of his prepared speech, it made no mention of rates or the current state of the economy.

That was not true about an hour into the markets opening. The ISM was predicted to be 51.0 to 51.5. It was published at 54.7. That caused rates to change direction and spike upwards.

Bond traders and investors ignored a far lower than forecast Pending Home Sales. Pending Home Sales were also lower than last month’s 109.3. The National Association of Realtors reported its index of sales was 104.3.
There was only one source making any predictions about Pending Home Sales. Therefore, it is very possible that the lower number was as predicted and as such not a surprise. A surprise does not influence rates.

The 10-year Treasury is +.028% with the rate at 4.658%.

TOMORROW, 02 May 2007

There are some items of low and very low importance out at the markets opening. The weekly MBA Purchase Application Index is a reading of potential changes in the housing market. The monthly ADP Employment Report, and the Challenger Job report are two separate surveys that attempt to paint a picture of the employment situation. The ADP Employment Report will influence rates on a rare basis. Challenger seldom does.

At 09:00cdt {14:00gmt} Factory Orders are released. Last month orders grew at +1.0%. The predictions for next month are for a growth of +1.0% to +2.4%. Only one source is expecting the +1.0% growth. That source is seldom outside of the normal range of thought. It is possible that this hit the wires in error.  Factory Orders do have a history of impacting rates at times.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

MID-TERM OUTLOOK [1 May 2007]

There may be a few problems for rates for this quarter.

1.) The housing bubble has ‘burst’. The question is, will housing continue to decline? Is it flattening? Or, is it on the verge of a rebound? The data over the last few months has been a resounding maybe to all three. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

2.) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the last FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

3.)In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. That will impact not just corn flakes, but pop/soda, beef, and pig, just about anything we eat.

None other than the Western Hemispheres worse dictators agrees with us. (For once

He understands economics.)

An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.

Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.

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

This was a very good day for rates. The 10-year Treasury closed -.068% with the yield at 4.630%. The price – which moves in the opposite direction of rates – closed +18/32. The bond market was driven by a plethora of data. Most of the economic data was below expectations.

The only item that was not below expectations was Personal Income. It was expected to be +0.5% to +0.7% and it was reported at the high end of expectations at +0.7%.

Personal Spending is a report that comes out with Personal Income. Personal Spending was anticipated to be +0.5% to +0.6%. The Department of Commerce reported consumer spending was +0.3%. Not only was that lower than anticipated, it was obviously below income growth.  Since its growth was less than Income, the bond market interpreted that as anti-inflationary. The theory is that the lower Spending could lead to increased savings.

The final part of the Commerce Department’s report this morning was the PCE (Personal Consumption Expenditure). This gauge of inflation is watched closely by the FED. Until this month it has been widely ignored by the financial press. But, it has not always been ignored by the bond market. Core-PCE was expected to be +0.1%, but it was reported below that at 0.0%.

The Personal Income and Expenditures were out at the market’s opening. At 08:45 the Chicago PMI was released, and it was also below the forecast of 53.0 to 55.0. The National Association of Purchasing Managers Reported its purchasing Managers Index at 52.9.

Finally, at 09:00 the Department of Commerce put out the Construction Spending Report at +0.2 which was in the middle of the forecast of +0.1% to +0.4%.

[Publisher’s note: We are going to abandon our commitment to post in the morning. Most days we will still post in the first morning. But many days we will post in the afternoon of early evening.]

TOMORROW, 01 May. Happy Commie Day!!

The big item for the day will be a Speech by FED Chairman Ben S. Bernanke, titled:
Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy. The speech will be given at the Montana Economic Development Summit in Butte, Montana at 11:00 a.m. The FED’s release did not state if that is Eastern Time or Mountain. Anytime the FED chair opens his mouth, bond markets open their collective ears.

There are two important items prior to Ben Bernanke’s speech. The Institute of Supply Managers index (ISM), is issued at 09:00cdt {14:00gmt}. It is predicted to be 51.0 to 51.5; higher than last month’s 50.9. We are not certain it will be higher.

At the same time (09:00), the Nat’l Association of Realtors releases the number of Pending Home Sales. A few months back many bond investors did not even know this number existed. As the US residential housing sector tries to determine its direction the bond market pays close attention.
The housing bubble has ‘burst’. The question is, will housing continue to decline? Is it flattening? Or, is it on the verge of a rebound? The data over the last few months has been a resounding maybe to all three. Tuesday will give one more piece to the puzzle. There is only one group making a prediction at +0.4% verses 0.7% last month. The bond (and all) markets will take note of the actual number and respond accordingly.

Late in the day, long after the market has closed, the Auto & Truck Sales are out. They seldom impact the next day. Predictions are for 12.3 to 12.5 million units.

SHORT-TERM OUTLOOK [29 April 2007]

Almost every day this week has at least one important item. The heaviest day is Friday when the Employment Situation Report is released. The Employment Situation Report consists of four items; Unemployment, Payroll growth, Average Workweek, Hourly Earnings growth.

Prior to Friday, Monday sees the release of Personal Income and Spending along with PCE, Construction Spending, and Chi PMI.

Tuesday the first of May, more commonly known as May Day, or as we call it Commie Day, starts with ISM and Pending Home Sales shortly into trading. Ben Bernanke gives a speech mid-morning, Auto and truck Sales are out late afternoon.

Wednesday is the quietist, but not absent of data. It does contain the Factory Orders data.

Thursday includes Productivity.

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

The economic good news appears to be canceling out the economic bad news in this mornings bond trading. The 10-year Treasury is flat at +.006% making the rate 4.690%.

The economic news was mixed this morning. At the opening, also the most important, was the GDP. It was anticipated to be +1.5% to 2.0%. It was reported to be +1.3%, not only below the expectations, but lower than last quarter. This should have caused rates to drop.

The low GDP was countered with a far higher than expected Chain Deflator. Expectations were for a reading of 3.0% to 3.1%. This favored measure of inflation was +4.0%. There was some good news when the details were examined. The majority of the price increase was due to higher energy costs.

The PCE portion was above the FED’s target of 2.0%, and was reported at +2.2%, which was what the market was anticipating.

Normally, these two inflation gauges should have caused rates to shoot up. But they were countered by the aforementioned GDP, as well as the Employment Cost Index (ECI).

The 1^st Quarter ECI was lower than it was thought it would be. It was predicted to be +.9% to +1.0%. The Labor department published the quarterly number at +0.8%. This indicates that a wage-price-spiral is not a big factor. That should have moved rates lower.

At 09:00cdt {14:00gmt} the Michigan Consumer Sentiment was reported at 87.0. This was expected to be 85.3 to 83.0.
This far higher number should have impacted rates upward. But, it was offset by ECI which was balanced by PCE, which was tempered by the Chain Deflator, which was balanced by GDP.

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

Rates did close higher in the afternoon as the bond market reacted to an active stock market. The 10-year Treasury closed +.038% at 4.689%.

Bonds with the price slightly lower, rates a bit higher as the weekly Initial Jobless Claims was lower than anticipated. This is an inverse indicator, so a rate lower than expected is good for the economy, but bad for rates. Only 321,000 workers filed unemployment insurance, while economists were expecting 325k to 329k.

The Help-Wanted Index was lower than forecast at 30, while forecasts were for 31.

TOMORROW, 27 April 2007

Friday will be a heavy day with the GDP report and the attached Chain Deflator. The Employment Cost Index is also published. Finally, The Michigan Consumer Sentiment also has a chance to impact rates.

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

The early morning did not look good for rates. The bond market reacted to a higher than anticipated Durable Goods Orders that was released at the opening. Analysts expected capital outlays to be +1.2% to +3.0%. The +1.2% guessers were uncharacteristically far out of accuracy. Purchases of everything from washing machines to 747s were +3.4% last month.

That higher than expected report moved the 10-year Treasury to a high of 4.656% which was +.034% higher than yesterday’s close.

At 09:00 New Home Sales for March were lower than economists thought they would be. Economists were predicting New Home Sales to be 885k to 900k units. 858,000 units were actually sold which was higher than February, but still under expectations.

That brought rates on the benchmark 10-year Treasury down to 4.618% which was fairly flat from yesterday. At that time it was -.002% below Tuesday’s close. Since that time, rates have inched back up +.008% to make the yield on the 10-year Treasury 4.632%.

The bond market is paying a little bit more attention to Durable Goods. A portion of Durable Goods is orders that have not yet been filled. Because it is a more forward looking indicator than New Home Sales, it carries more weight.

TOMORROW, 26 April 2007.

There are only two items published on Thursday. The one at the opening, the weekly Initial Jobless Claims, is of moderate importance, and can occasionally move bonds.

The other, the Help Wanted Index, is of low importance, seldom influences rates, and is published at 09:00cdt {14:00gmt}. However, it can be instructive of the condition of the job market. Expectations match last month’s reading of 31.

Prior to the Help Wanted Index, the weekly Initial Jobless Claims will be published at the markets opening. Analysts are predicting 325k to 329k employees will file for first time unemployment insurance. That is lower than last weeks 339k. This is an inverse indicator. A lower than predicted number is good for the economy but bad for rates, and vice versa.

In all likelihood, the bond market will ignore the economic data and prepare for Friday’s big numbers. The 1^st quarter GDP Report will be made public at the bond markets opening on Friday.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

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

Contrary to what we thought, Consumer Confidence was lower than expected this morning. We were right when we said someone would be surprised. The expectations were very tight at 104.9 to 105.0. The Conference Board reported Consumer Confidence at 104.0.

What probably impacted rates to a greater extent was Existing Home Sales which were anticipated to be 6.40M to 6.69M unit.  That was lower than last months number. In March 6.12M Existing Homes were sold.

The two combined to bring rates down. The 10-year Treasury is -.036 at 4.614%.

There were weekly items of lesser importance, but can give clues to upcoming Retail Sales number. UBS Store Sales was -0.3% in week-to-week comparison, and +2.1% in year-to-year analysis. Redbook was -0.2% in year-to-year comparison.

TOMORROW, 25 April 2007

There are two important and market moving items in the morning.

Wednesday’s bond market opens with Durable Goods Orders. There is a wide range of expectations from +1.2% to +3.0%. Of the sources we follow, only one is at the +1.2% level. The remaining estimates range from +2.2 to +3.0. The lowest one at +1.2% does tend to be the correct one when its estimates are far outside of the common estimates. With the exception of the +1.2%, all are above last month’s +1.7%. This MAY give us a good day.

Like today’s Existing Home Sales, New Home Sales are forecast to be above the 848k units sold last month. The bond market is looking for New Home Sales to be 885k to 900k units.

Be careful not to assume New Home Sales will copy today’s Existing Home Sales trend of coming in below predictions. It is seldom that the two move in the same direction. New Home Sales has recently been below forecast.

There are two more items that occasionally move rates, but not often. The market will open with the weekly Mortgage Bankers Association (MBA) Purchase Application Index. The FED’s Beige Book is published at 13:00cdt {1:00p.m, 18:00gmt}. MBA Index and the Beige Book have no predictions.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

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

Bonds closed with a higher price as the bond market responded to positive demand for treasury auctions. The rate on the 10-year Treasury – which trades in opposite direction to price -- closed -.022 with the rate at4.650%. There were no other economic events driving rates.

TOMORROW, 24 April 2007

Tuesday’s economic calendar does not come to life until 09:00. An important and volatile economic event comes out at that time; Consumer Confidence. Analysts are expecting Consumer Confidence to be lower than last month’s 107.2, with expectations at 104.9 to 105.0. That tight of a spread of guesses could bring some volatility. Someone, if not everyone will be surprised. Our concern is that the surprise will be bad for rates. Is consumer pessimism growing?

Existing Home Sales will probably be the most watched tomorrow morning as all markets try to continue gauging the condition of the residential real estate market. Predictions are 6.40M to 6.69M units to be sold, lower than the 6.89M sold last month.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

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

Rates are mostly flat in early afternoon trading. They were not flat in mid-morning trading as the 10-year Treasury was as high as 4.692%. There were no economic

items this morning to direct rates one way or the other.

The bond market’s climb mid- morning is mostly attributed to stock market activity.

FED Governor Mishkin’s gave a speech is titled, “U.S. Economic Outlook at the Levy Economics Institute, Bard College, Annandale-on-Hudson, New York; at 12:30 p.m. EDT. While we do not yet have the text, it appears that the speech was good for bonds. Trading reversed course in the first ½ hour of his address.

The 10-year Treasury is +.006% with the yield at 4.676%.

We will blog about next week tomorrow.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com