Friday, 2/5/10 4:13 PM

After a choppy start this morning the bond and mortgage markets improved once the stock market turned lower. The employment report this morning will bolster readers of tomorrow morning newspapers with the unemployment rate falling to 9.7% from 10.0%. That stat isn't even close to the true unemployment and traders know it; nevertheless it doesn't stop the mis-placed hype. We have held to 17% as the true real unemployment, today BLS adjusted their total real unemployment to 16.5% frm 17& in Dec. Census workers, part timers, will keep the unemployment rate from crashing in the next few months but those are not jobs in the traditional definition, jobs that are permanent and matching skill levels. 

The DJIA declined 167 points at its worst this afternoon, in the final hour however the indexes found short-covering and some buying from the die hard bulls taking the index back to unchanged at 3:15. Treasuries and mortgages took the ride and improved to their best levels when the stock indexes were at their worst, but lost some of the improvement when equity markets bounced. Volatility today in the equity markets was high with indexes moving rapidly at times. Some of the key sectors have now completed the 10% correction that most believe will hold. The DJIA, NASDAQ and S&P however have not yet achieved the goal would-be buyers are waiting for. Anticipating interest rate market movement is tied at the hip with the stock market.

At 3:00 Dec consumer credit hit at -$1.73B against expectations of a drop of $9.5B; revolving credit (credit cards) did decline -$8.55B and Nov credit was revised to -$21.83 from -$17.5b originally reported. Consumer credit data is in our view one of the most significant data points each month as a measurement of consumer spending and the desire (or lack there of) to expand debt. It is now 11 months in a row that consumer credit has dipped. A minute before the data was released the DJIA was -107, 10 minutes later -25; the 10 yr lost 6/32 and mortgage prices backed down 4/32 (.12 bp).

Next week Treasury will step up for $84B of more borrowing with 3s,10s and 30s in the Feb refunding. Not much in the way of market moving economic data until late next week with Jan retail sales. Technically, the 10 yr note is going to close under that now infamous 3.60% level and mortgage prices are above their chart resistance levels.

This week was punctuated with increased interday volatility but by the end of the week only a slight decline in rates. At 4:00 the 10 yr rate at 3.56% is 3 basis points lower than the close last Friday, the 5 yr note at 2.23% -9 bp, 2 yr at 0.77% -5 bp. Mortgage prices +14/32 (.40 bp) on 30s, -15/32 (.46 bp), and 15 yr fixed +10/32 (.31 bp). The DJIA -55, NASDAQ -6, S&P -7. Gold -$16.00, crude oil -$1.00.

PRICES @ 4:00 PM

10 yr note:                          98.14 +11/32 3.56% -3 BP

5 yr note:                            100.02 +9/32 2.24% -5 BP

2 Yr note:                            100.06 +2/32 0.77% -3 BP

30 yr bond:                         97.20 +17/32 4.52% -3 BP

Libor Rates:                        1 mo 0.228%; 3 mo 0.249%; 6 mo 0.385%; 1 yr 0.837%

30 yr FNMA 4.5 Feb:           101.13 +3/32 (.09 bp) (+5/32 (.15 bp) frm 9:30)

15 yr FNMA 4.0 Feb:           102.02 +4/32 (.12 bp) (+7/32 (.22 bp) frm 9:30)

30 yr GNMA 4.5 Feb:          101.25 +5/32 (.15 bp) (+8/32 (.25 bp) frm 9:30)

15 yr GNMA 4.0 Feb:          102.25 +4/32 (.12 bp) (+7/32 (.22 bp) frm 9:30)

Dollar/Yen:                        89.41 +0.41 yen

Dollar/Euro:                      $1.3657-$0.0068 (buck better)

Gold Apr:                           $1066.90 +$3.90

Crude Oil Mar:                    $71.83 -$1.31

Goldman-Sachs

Commodity Index:            475.65 -10.21

DJIA:                                 10012.23 +10.05

NASDAQ:                           2141.12 +15.69                        

S&P 500:                           1066.20 +3.09