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Thursday, June 24, 2010
Treasuries and mortgage opened better again this morning on weaker stock index trading. At 8:00 am the 10 yr note was +15/32 at 3.06%; mortgage opened better, up 6/32 (.18 bp) frm yesterday’s close. Late yesterday there was some slippage in mortgage prices from 4:00 levels taking mortgage prices back to about unchanged on the day and unchanged from 9:30 yesterday.

At 8:30 two data points; weekly jobless claims were expected to have declined 7K to 465K, claims were down 19K to 457K after an upward revision last week from 472K to 476K. Continuing claims declined to 4.548 mil from 4.593 mil. May durable goods orders expected to be down 0.5% were down 1.1% overall but when the volatile transportation orders are subtracted orders were up 0.9% in line with forecasts. A little decline from the best levels in bonds and mortgages but still were better. The DJIA index at 9:00 was down 45 points suggesting a lower open at 9:30. At 9:30 the DJIA opened -50, 10 yr note +10/32 at 3.08% and mortgages +5/32 (.15 bp).

Weekly unemployment claims were better than expected, however when we stand back to take a wider look claims are still running around 450K a week, or 2.25 mil a month. Hard to make a silk purse out of a pigs ear and spin something positive out of the claims, nevertheless markets are trying. The 0.9% increase in durable goods bookings for goods meant to last at least three years, excluding autos and aircraft, followed a 0.8% decrease in April. The take away from durables is that the manufacturing sector is continuing to improve; ex transportation orders have been up three out of the last four months. All that is good but so far consumers that account for 70% of GDP growth have not shown much interest in spending, keeping economists on edge and the Fed lowering its economic outlook at the FOMC statement yesterday.

Long term interest rates are falling around the world as fears of a very slow recovery spread. In Japan their 10 yr JGB bond has declined from 1.30% to 1.13% in the past few weeks, the German 10 yr bund yield also is declining. European stocks fell today, led by indexes in Greece, Spain and Portugal. Credit-default swaps on Greek government debt rose 38 basis points to a record 970, according to CMA DataVision. Debt issues in Europe continue to roil markets with increasing concern Europe’s economy will slip and slow recovery around the world, especially here in the US. Markets just cannot shake off Europe’s financial problems.

At 1:00 this afternoon Treasury will auction $30B of 7 yr notes. Yesterday’s 5 yr note auction was a little disappointing compared with recent Treasury borrowing. That said, Treasury has been very successful selling US debt over the past year and will continue to meet with decent to solid demand with so much uncertainty over global economic recovery and sovereign debt issues in Europe. All key bond markets are rallying.

The Treasury 10 yr note is working at the reactionary low rate made in late May at 3.09%; early today the yield fell to 3.06%. If the 10 yr is going to break below 3.00% it will have to be on the back of continued selling in the stock market. So far investors and analysts have kept a positive attitude toward the longer economic outlook being sluggish but not moving to a double dip recession. The stock market isn’t collapsing nor is it rallying; swinging in wide ranges and teasing the 200 day average on key indexes.

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