Yesterday's shocking surprise on the May Philly Fed business index turned what was likely to be a run to slightly higher rates around on a dime. The index was expected to increase from 18.5 in April to 20 in May' as released the index plunged to 3.9 and the new orders component fell substantially, from 18.8 to 5.4. Until that hit at 10:00 the bond and mortgage markets were not looking good; the 10 yr note yield had spiked from 3.11% on Tuesday to 3.25% at 9:59 yesterday and mortgage prices had declined 24/32 (.75 bp) with the 30 yr rate up 10 basis points. The very closely monitored Philly Fed decline temporarily reversed heavy selling that was predicated on the FOMC minutes from the 4/27 meeting in which there was a lot of discussion about the Fed ending easing moves and how the Fed would begin to exit and the first move to tighten. The take away on Wednesday; the Fed believes the economic recovery will continue, no more QE and with interest rates so low investors and traders started toward the exit.
There are no economic releases scheduled today and nothing next Monday. With no data points to either confirm the weak Philly Fed data or refute it the bond and mortgage markets will look to the action in the equity markets for direction today. Next week Treasury will auction $99B of notes, with the markets presently uncertain today well be a quiet one.
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