Weekly Preview - Jan. 11, 2010

Last Week; Nov pending home sales plunged 16%, 5 times greater than forecasts. The decline blamed on the expiration of the home buyers tax credit prior to the extension by the Obama administration. The manufacturing report on Dec activity picked up and with the exception of employment in the sector all components pointed to expansion. The Dec employment data was softer than thought with non-farm jobs declining 85K compared to unchanged that was the consensus. The overall unemployment rate at 10.0% was unchanged from Nov but the headline masked 661K that have simply stopped working. Spin it anyway but we come back the reality that jobs are not being created, just firings have slowed. Across the yield curve only the 10 yr note did not see any improvement; the 2, 5 and 30 yrs were all slightly lower in yield. Mortgages improved slightly in price (about 10/32 (.31 bp). The week was marked with interday volatile swings as investors and traders expect rates to increase but the rate markets were technically oversold and a slight improvement was expected. Rate are unlikely to decline much based on the present bearish sentiment; not mat want to be buying treasuries at these low rates.
 
This Week; it is mostly about supply with treasury selling $84B of notes and bonds beginning on Monday and continuing through Thursday. Treasury borrowing has and will continue to increase as the Administration and Congress are spending (borrowing) at amounts heretofore unheard of, and still difficult to fully grasp the amounts. Most taxpayers money has been used to shore up the big banks and very little to help the common folk. What has been spent to assist consumers and increase jobs has been poorly thought out and a complete waste. This week' economic data isn't until Thursday and Friday with Dec retail sales, Dec CPI and Dec industrial production and factory usage. Wed the Fed will release its report on the economy. The Beige Book. Technically and fundamentally the week starts with a bearish bias, the Treasury auctions should keep prices under pressure through mid-week. If the auctions meet strong demand we can expect some improvement in rates by the end of the week.

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