Market Update

Market Outlook

Friday, August 29, 2008             

Price Trend:  Negative

Price Volatility:  High

Recommendation:  Consider Locking

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Current Conditions:                Today's Economic Data (all times PST)

FNMA 6.0          101-01  (-3)                   Personal Income/Spending                      5:30     

GNMA 6.0          101-18 (-4)                   Chicago Purchasing Managers Index         6:45

10yr Yield          3.802%                         Consumer Sentiment                              7:00                 

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Commentary:

Bonds are down this morning after the Personal Consumption Expenditure index (which is part of the income and spending report) showed inflation is accelerating.  PCE is the Fed's preferred measure of inflation and bonds have reacted appropriately to the data.  Incomes declined in July by a larger margin than expected and this slowed the growth in spending.  Still, there was growth in spending while incomes declined; only in America! 

Other data released this morning was clearly overshadowed by the PCE release but they were also negative for bonds.

Today is an early close for the bond market.  Many of the participants have already left for the weekend and that will fuel volatility. 

Have a great long weekend!

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