Blogs

It was another quiet day with not much movement in the interest rate world. The equity markets managed to climb for the seventh day in a row on continued weak inflation now and in the immediate future. This morning the Feb PPI declined by 0.6% against estimates of -0.2%. No matter it was mostly the decline in crude in Feb, the details rarely trump the headlines. The core PPI (ex food and energy) was up 0.1% as expected. Yr/yr overall PPI +4.4% and when looked at the core alone inflation yr.yr up 1.0%, well below the supposed 2.0% the Fed is targeting. 

The bond and mortgage markets started fractionally better this morning after a good rally in treasuries yesterday when the FOMC statement didn't change as far as how long the Fed will keep the FF rate at the present levels. Some, including ourselves, were looking for some change in the language to give the Fed a little more wiggle room on when it will begin to move rates higher. The statement continued to use the "extended period" of time for how long rates would stay at present levels. The statement also confirmed the Fed isn't worried about inflation. The market reaction boosted treasuries and to a lesser extent mortgage prices. We have repeatedly commented that any concerns about an increase in inflation is unwarranted now or in the next year at least. High unemployment will continue throughout this year and businesses have no pricing power as consumers will remain cautious in spending.

At 2:15 the FOMC policy statement hit; as always media and talking heads tried to make something out of it, but as Bill Gross at PIMCO commented, it was a snoozer. The statement offered little in the way of change. "Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls.

Started again today with not much change in the rate markets. At 8:30 the 10 yr -2/32, mortgage prices -2/32 (.06 bp) and the DJIA index +13. 8:30 brought Feb housing starts and permits; starts were down 5.9%, Jan starts however were revised higher to 611K from 591K originally reported; most of the blame for the decline in starts is on bad weather and snow. Feb building permits were slightly better than expected, down 1.6% against estimates of -3.2%. There was no noticeable market reactions to the housing numbers. Also at 8:30 Feb import prices declined 0.3% while export prices fell 0.5%; yr/yr import prices are up 11.2% while export prices +3.1%. The annual increase in import prices is driven by oil prices.

It took until 3:00 this afternoon to see any improvement in mortgage prices and treasuries; until then the day was marked with a 3/32 price range for the 10 yr and mortgages in a 5/32 range (.15 bp). The equity market was lower all day but did manage to improve slightly in the last 45 minutes of trading. . Markets waiting for the policy statement from the Fed after the FOMC meeting tomorrow. Although we are not expecting a lot from the statement, the worn comment that the Fed will let interest rates low for an "extended period" is likely to be re-worked to allow the Fed more flexibility in increasing rates when necessary. That said, markets are not expecting, nor will a change in wording, increase the timing on when the Fed will act. The economy is still fragile and most all Fed officials are saying that higher rates until the economy sees job growth is highly unlikely.

Somewhat of a quiet start this morning; early on the 10 yr note traded +5/32 at 3.69% with mortgages unchanged. At 8:30 the data on the NY Fed Empire State manufacturing report put some support in the stock indexes and pushed bond prices back to unchanged. The DJIA prior to the 8:30 report traded off 37 points, on the data the DJIA still weak but only off 16 points. At 9:00 the 10 +3/32, mortgages +1/32 (.03 bp) and the DJIA futures index -17. At 9:30 the stock market opened fractionally better, after trading lower all morning the DJIA opened a little better but the NASDAQ and S&P were slightly weaker.