Market Minute

The bond and mortgage markets opened better this morning as the choppy trade remains in tact with not much actual change in rates this week so far. At 8:00 the 10 yr +7/32, mtgs +3/32 and the DJIA futures -30; at 9:00 the 10 yr note +13/32 at 3.69%, breaking under 3.70%, mortgage prices +8/32 (.25 bp), the DJIA -31. At 9:30 the DJIA opened -27, the 10 yr note +17/32 3.67% -7 BP and mortgage prices +10/32 (.31 bp).

8:30 data provided the platform for price improvement this morning. Dec consumer price index, expected to be +0.2% was reported +0.1%; the core rate (ex food and energy) +0.1% as expected. No inflation and another reaffirmation that inflation isn’t to be concerned with for this year. Yr/yr the CPI +2.7%, the core yr/yr +1.8%. Inflation usually starts with wage pressures but in this high unemployment world wage pressures are highly unlikely. Also at 8:30, but somewhat ignored; the NY Empire State manufacturing data. The overall index was expected at +11.25, it jumped to 15.92 frm +4.5 in Dec; the new orders component exploded to +20.48 frm 2.77 in Dec, prices at 32.0 fm 19.74 and employment at 4.0 frm -5.26. Any read over zero is considered expansion. Neither the equity markets or the bond market paid much attention to the better data.

At 9:15, Dec industrial production expected to be +0.6%, and Dec factory use expected at 71.8% frm 71.3% in Nov; production right on target at +0.6% but Nov revised slightly lower to +0.6% frm +0.8%. Factory use increased to 72% frm 71.5% in Nov. Both data points were generally passé to traders as there was no deviation from what had been expected. Finally this morning; at 9:55 the U. of Michigan consumer sentiment index, expected at 73.8 frm 72.5 at the end of Dec was 72.8, not much of a difference in this choppy and emotional report every two weeks. The one yr out sentiment index jumped to 82 frm 79 at the end of Dec; increasing equity prices driving the longer outlook.

The dollar was very strong this morning against the euro currency putting a little pressure on the equity markets and adding additional support to the bond and mortgage markets. The trend for the dollar is up but in a two way move with periods of dollar selling.

Treasury markets are relishing no supply coming now for the next two weeks. Mortgages tracking along. A retracement in the bond markets was expected after the huge rate increases in Dec, but timing and the reality that interest rates are not likely to head lower has kept things conservative on trading the markets from the long side. No inflation, as much as traders fret over it, it has to be settling in that worrying about inflation is wasted effort.

Markets are headed into a long three day weekend; Monday markets will be closed for MLK holiday.

Market Minute information for January 15th, 2010 provided by:

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