Weekly Preview - Jan. 4, 2010

Last Week; another bad week for the bond and mortgage markets. The 10 yr treasury note and mortgage rates have now increased 60 basis points in the past three weeks. The interest rate markets are exceptionally bearish as the economic recovery is thought to be on track for a solid recovery in 2010. While economic improvement with overall interest rates at historic lows has pushed rates up, add in the increasing realization that Treasury borrowing to fund what is expected to be a budget deficit of $1.8T and it is difficult to ignore that interest rates are likely to head higher through the year. Mortgage rates are likely headed to 6.0% in Q1 and the bellwether 10 yr treasury note to 4.00%. The ONLY caveat; if the prospects for a strong economic recovery falter rate markets would benefit.   This Week; its back to business providing a clearer outlook for the near term as markets will have more players after two weeks of very low volume. Low trading volume isn't the best judge of overall market sentiment, so with everyone back we will have a better understanding on a wider platform of opinions. No Treasury borrowing this week; the week is anchored with Friday's Dec critical employment report. Through the week there are key economic releases everyday leading to Dec employment data, expected to see no change in non-farm job growth (decline); the unemployment rate is expected to increase to 10.1% frm 10.0% in Nov. The rate markets are technically oversold after the recent hard selling; overdue for a retracement. That however is not new, the bond and mortgage markets have been oversold all of last week but pressure continued as the bearishness increased over the past month. Expect this week to be volatile and possibly some slight improvement in rates but nothing close to a change in the bearish trend.

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