Thursday, 3/11/10 10:09 AM

Prior to the 8:30 weekly jobless claims report the 10 yr and mortgages were trading lower; 10 yr -7/32 and 30 yr mtgs -5/32 (.15 bp) ; the DJIA -14. Weekly jobless claims were expected to be down 9K to 460K, as released claims were down 6K to 468K with continuing claims increasing for the first time in weeks, at 4.558 mil frm 4.52 mil last week, the 4 week average increased by 5K. Also at 8:30 the Jan trade deficit hit at -$37.3B less than $41B expected. Not much market reaction to the 8:30 reports; 10 yr -6/32, 30 yr mtgs -3/32 (.09 bp) and the DJIA -19. At 9:00 the DJIA -35, 10 yr note -2/32 at 3.73% +0.5 BP, mortgage prices -1/32 (.03 bp). At 9:30 the DJIA opened -14, 10 yr note -5/32 and mortgage prices were down 3/32 (.09 bp).

The second week in a row that weekly unemployment claims have declined implying businesses are finished firing workers. So far however not any evidence that hiring is occurring; until more jobs are created the economic outlook will remain muddled. Recent economic gains were based on inventory builds and efforts to control inventories. Going forward the inventory push won't be there to drive growth; to get the economy moving it needs new jobs that will get consumer spending going. You have heard it many times, consumers normally account for 70% of economic growth; up to this point consumer spending has not engaged much. Unless consumer spending improves the economic outlook will remain questionable and subject to rapid sentiment changes.

A recent survey of economists has lowered the outlook; according to the survey GDP growth in the first six months this year was lowered to +2.75% frm 2.90%. Q4 2009 growth racked up a GDP gain of 5.9%; 3.9% of the growth was attributed to a smaller decline in inventories in the quarter and that isn't likely to be repeated.. The survey was conducted from 3/1 to 3/10. Economists also said consumer spending is expected to increase, and that the unemployment rate will decline faster than previously thought given improvement in job losses seen in the first two months. Consumer purchases will grow 2.1% this year and expand 2.5% in 2011, according to the survey. By comparison, spending rose 3.3% on average over the two decades through 2007. Unemployment  will fall to 9.6% in the third quarter, down from a prior forecast of 9.8%; it will average 9% in 2011. Surveys are an ongoing thing and based a lot on current events and do swing with data releases. The survey also pointed to inflation remaining weak and that the Fed will let rates low.

This afternoon Treasury will complete its $74B borrowing with $13B of 30 yr bonds, re-opening the 30 yr bond issued last month. The two previous auctions (3s and 10s) went well with good demand, but today's 30 may be a little more of a problem; at least that's what traders are saying this morning---but every auction brings trepidation. Early talk so far is the yield will come at 4.75% (at 10:00 the 30 yr is 4.71%). Pres.Obama has increased U.S. marketable debt to an unprecedented $7.41T to fund a budget deficit the government predicts will swell to a record $1.6T in the fiscal year ending Sept. 30. Increasing chatter from the pits that investors will be expecting more yield as the borrowing continues to climb, especially at the longer end of the curve----not what we want to hear for the mortgage markets.

Nothing more today on the schedule but the auction at 1:00. Treasuries remain technically weak trading above the key moving averages on the yield chart. The 4.5 FNMA coupon is sitting right on its key 20 and 40 day averages, so far holding. Treasury rates at the long end of the curve(10s ands 30s) are slowly increasing this week. Mortgage rates and prices are unchanged with the exception of 30 yr FHAs which have increased 8/32 (.25 bp) so far this week. 

PRICES @ 10:00 AM

10 yr note:                         99.03 -3/32 3.73% +1 BP

5 yr note:                           99.28 -2/32 2.40% +2 BP

2 Yr note:                           99.28 -2/32 0.94% +3 BP

30 yr bond:                        98.27 -1/32 4.70% unch

Libor Rates:                       1 mo 0.230%; 3 mo 0.257%; 6 mo 0.393%; 1 yr 0.861%

30 yr FNMA 4.5 Apr:          @9:30 100.28 -3/32 (.09 bp) (unch frm 9:30 yesterday)

15 yr FNMA 4.0 Apr:          @9:30 101.27 -3/32 (.09 bp) (-2/32 (.06 bp) frm 9:30 yesterday)

30 yr GNMA 4.5 Apr:         @9:30 101.17 -4/32 (.12 bp) (+2/32 (.06 bp) frm 9:30 yesterday)

15 yr GNMA 4.0 Apr:         @9:30 102.18 -2/32 (.06 bp) (-1/32 (.03 bp) frm 9:30 yesterday)

Dollar/Yen:                       90.40 -0.07 yen

Dollar/Euro:                      $1.3632 -$0.0020

Gold Apr:                          $1101.60 -$6.50

Crude Oil Apr:                   $81.54 -$0.55

Goldman-Sachs

Commodity Index:             525.36 -2.30

DJIA:                               10525.99 -41.34

NASDAQ:                         2353.35 -5.60

S&P 500:                         1142.28 -3.33