Mortgage Bonds are trading lower as Stocks rebound a bit after this week's equity washout.
In this morning's economic news, weekly Initial Jobless Claims increased by 10,000 to
455,000 claims, meeting expectations, as workers were displaced by Hurricane Gustav in
Louisiana. The four week moving average of continuing claims rose by 29,750 to 3.46
million to remain near a five year high. All in all, this report suggests continued weakness in
the labor market.
In a bid to ease the credit crunch and restore a sense of calm in the financial markets, the
Federal Reserve authorized a $180 billion expansion of its swap lines with other world
central banks. The funds, which will be provided by the Federal Reserve, can be injected
into money markets through overnight and term loans. Stocks are liking this news so far and
this is pressuring Bonds.
Something to think about - The Fed is attempting to be savvy and creative in its ways to help
the financial system get back on track. However, there is simply no one who can draw upon
past experience to find answers here. This situation is historic...and we are living through it.
It is almost comical to hear the utter stupidity that comes out of the mouths of some of the
politicians who are paraded in front of the cameras...I can't help but think that we actually
elected these people.
There is a lot of panic out there. People are very worried about their life savings. Is money
in the bank safe? How about if it is in a life insurance policy? How about in bonds?
Unfortunately the answer is no, no, no. Yesterday, the panic reached a level that caused
such a demand on Treasuries, that the total return of some short-term paper went negative.
That's right...the premium paid was higher than the return provided by the yield. So keeping
your cash under the mattress is better than an investment in some Treasuries, and
apparently safer than the financial market. Suddenly, guess what may become the most
attractive way to protect your money? Think about it...you can touch it, get a tax break, live
in it too. Yes, Real Estate is starting to look pretty good, especially since it has become more
reasonable priced.
The Fed has come to the rescue lately, but all these bailouts and programs to help faltering
companies is hard to sustain. They can't save everybody because money will run out. As
mentioned, the Fed has been very creative. But eventually, the money and creativity could
run out. And the Fed may need to actually print money - this would be highly inflationary.
Let's hope it doesn't get to this, as that would be very bad for rates. We sure are living in
interesting times.
Leading Economic Indicators were reported at -0.5%, in line with expectations. Philadelphia
Fed Index was up 3.8, far better than expectations of -10. Stocks strengthened momentarily
on the surprisingly good Philly Fed number.
Prices are trading sideways in a volatile 100bp range, with resistance at $101.47 and support
at $100.50. I will keep my eye on the trading range and keep you posted.
MMG Update - Thursday, September 18, 2008 10:35am ET
Current Trend Direction: Sideways
Risks favor: Carefully Floating
Current Price of FNMA 5.5% Bond: $100.72, -28bp
Comments(0)