Great Bond Market Re-cap…. tagged:

Great Bond Market Re-cap….

Posted by in Brian's Blog, Commercial Real Estate, Tip Of The Week

I get this every week from Joel Pate, I thought this week was particularly sharp on the bond action last week.

Last week began flat, but it turned out to be a good week for U.S. Treasuries. Disappointing economic news, successful auctions, continued economic turmoil in Europe and another pledge from the Fed to keep interest rates low for an “extended period” kept buying in bonds steady to heavy.

On Tuesday traders learned that consumer confidence in February fell to 46 from a 16-month high of 56.5, igniting a huge rally. Concerns about the economy and job prospects sent the index plunging far below the predicted 55.5, giving Treasuries their best day of the week.

They rallied again Wednesday when January new home sales plunged 11.2% to an annual rate of 309,000 units — the fewest since record-keeping began in 1963. An abundance of foreclosures on the market and high unemployment were cited as key reasons for the downturn.

Fed chairman Ben Bernanke also addressed Congress and acknowledged that recovery had begun, but cited “jobs” as the main challenge. He also said that economic recovery is not self-sustaining. These statements were well received by Wall Street, which drew some money from Treasuries.

But bonds rallied once again on Thursday as first-time jobless claims rose by 22,000 to 496,000 for the week ended Feb. 20. Some blamed the weather for the numbers, which were far higher than the expected 460,000. Continued claims, people collecting benefits for more than one week, rose to 4.6 million.
Durable goods orders in January doubled expectations, rising 3%. Aircraft accounted for the lion’s share of orders. When transportation was excluded, orders fell 0.6%. The unemployment numbers and fear that Greece may not be able to pay its debts sent investors fleeing to the safe haven of bonds.

Treasury yields edged down early Friday on a mixed bag of economic reports. Existing home sales in January fell 7.2% to an annual rate of 5.05 million units, the lowest level in seven months. The inventory of unsold homes rose to a 7.8-month supply. Separately, the first revision of 4thquarter GDP edged up to 5.9% from 5.7%, indicating the economy is growing more quickly than expected.

The Chicago PMI of February manufacturing conditions rose to 62.6 from 61.5, but the University of Michigan’s final consumer sentiment survey for February edged down to 73.6 from 74.4, on jobs and the economy — the same concerns that affected the consumer confidence report.
Mortgage applications slowed during the week ended Feb. 19, according to the Mortgage Bankers Association. Purchase applications were down 7.3% while refis tumbled 8.9%.

This week is busy, but it all leads up to Friday’s February employment report. Analysts expect another 20,000 jobs to fall from nonfarm payrolls. In addition, the unemployment rate, taken from a separate survey, could rise to 9.8% from 9.7%. This would ignite buying in bonds.
In December the rate was 10% and a revised 150,000 jobs were lost. Nevertheless, Treasuries should respond positively to the numbers, if they come in on target. The answer to economic recovery is jobs, jobs, jobs.