Why rates are coming down again (for now)

Thu, Mar 12 - 5:00 PM ET
Market Wrap: Our benchmark 4.5% mortgage bond rallied for the 2nd consecutive day gaining 22bp to close at $101.19 while the stock market enjoyed its first 3-day rally since Jan. 26-28. The day's news drove both markets higher for different reasons. For bonds, mixed economic news and a successful $11 billion auction in re-opened 30-year Treasury bonds led the way higher. Retail Sales initially weighed on bond prices following a stronger than expected reading of -0.1% in February vs. a consensus estimate for a -0.4% drop. Also, January's Retail Sales were revised to a higher 1.8% gain from an initially reported gain of 1.0%. After factoring out the effect of declining auto sales, Retail Sales had a gain of 0.7% vs. a forecast of 0.2% for February. However, weekly Jobless Claims allowed bonds to recover after showing continuing weakness in the labor market with an increase of 9,000 claims to 654,000. The four-week moving average for those claims increased by 6,750 to 650,000, the highest average in 27 years. Continuing jobless claims jumped by 193,000 to 5.32 million claims with the four-week moving average for these claims climbing by 124,250 to 5.14 million, both record high levels. The $11 billion 30-year auction exceeded expectations with a solid 2.40 bid to cover ratio and a better 46.2% level of foreign buying. In addition to the positive Retail Sales data, the catalyst for stocks was a less than feared cut in GE's credit rating by Standard & Poor's. GE's credit rating was taken down a peg due to problems with GE Financial but investors had feared a worse cut. Hearings before the House Financial Services subcommittee on mark-to-market accounting also lent support to stocks. Congressional leaders threatened to take corrective action if the SEC and Financial Accounting Standards Board (FASB) doesn't get off of their derrieres and enact more flexible accounting guidance. FASB Chairman Robert Herz told committee members that FASB could offer 'guidance in three weeks.' The Dow advanced 239 points to close at 7,169 while the broader S&P 500 Index reclaimed 29 points to end at 750. The NASDAQ Composite Index added 54 points to finish at 1,426.

4:26 PM ET - The NY Fed purchases $27B in MBS from Mar 5 through Mar 11 bringing the total to $217B since the program began.

4:02 PM ET - Don't look now but a three day rally in Stocks are in the books. The Dow is up 237 points at the close. S&P 500 at 750 up nearly 30 points led by surging shares of GE and the financial sector.

3:47 PM ET - Crude ends at $47.03/barrel up $4.70.