The 8:30 release of weekly jobless claims hit the very bearish bond and mortgage markets like a ton of
bricks. Claims for last week were expected to up slightly but fell 22K to 432K; continuing claims were down
57K. Although the holidays likely distorted the data, traders are not waiting to see; the 10 yr note yield jumped 10 basis points on the initial reaction and mortgages traded -19/32 (.59 bp) on the knee jerk reaction. Volume razor thin as we have noted many times in the past two weeks accentuates movement when a surprise hits. The initial reaction is likely overblown; we don’t take it as seriously as markets have so far this morning; the claims are obviously not to be taken too seriously with holidays interfering.
While the reaction to the decline in unemployment claims is excessive, the take away is the very bearish rate markets should not be ignored. It’s been forecasted by many for weeks that interest rates were going to head higher; lenders waiting for rates to decline will be disappointed. Yes, the bond and mortgage markets are and have been technically oversold for the past week; however, the magnitude of the initial reaction to claims this morning clearly emphasizes the underlying bearishness of fixed income markets.
Yr/yr the 10 yr note is up 165 basis points from 12/30/08; the 2 yr note +30 basis point, 30 yr bond up 200 basis points. Mortgages +150 bp frm 12/30/08.
By 9:15 markets settled down and prices recovered much of the initial reaction. The 10 yr at 9:15 down 14/32 after being down 27/32; mortgages -5/32 after being off 19/32 at 8:45. We cannot over emphasize that measuring market sentiment in thin markets is difficult; until next week market reactions can’t be taken too seriously. That said, no one should ignore the reality that rates are on the increase. Next week when markets are back to normal staffing will provide a more accurate measurement of the immediate outlook. We still expect a short-covering rally as rates have increased too rapidly; however from a near term trading perspective (floating customer rate locks to benefit from a rally) is not recommended. This is a bear with long claws.
Market Minute information for December 31, 2009 provided by:
 Patsy Bailey Mortgage Banker |
 4801 Lang Ave NE Suite 100 Albuquerque, NM 87109 4001 Office Court Ste 603 Sante Fe, NM 87507 Cell: 505.715.3231 Office: 505.473.4045 ext.109 E-mail: patsybailey13@gmail.com |
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