Interest Rate Roundup

Friday, May 29, 2009

Is anyone in Washington listening?

Folks, the market is shouting - SCREAMING -- that we are on a troublesome economic path. The tinkerers in Washington and Treasury are driving the dollar into the crapper. They're putting Treasuries into the shredder. The mortgage markets just dislocated in a huge way. And gold is flying toward $1,000 an ounce.

Oh and don't forget $66 oil, surging gas prices, rising soybeans, rising wheat, rising corn. Meanwhile, TIPS spreads are blowing out to the upside. At the 10-year maturity, they have gone from 4.3 basis points in November to 183 -- that's a 4,250% move if my math is right. I'm certainly not going as far as Marc Faber and predicting Zimbabwe-like inflation. But if Bernanke and Geithner don't show some sign of "getting" what the market is saying, we could end up with a real crisis.

To paraphrase Rick Santelli's CNBC rant from a while back, is anyone in Washington listening?

Thursday, May 28, 2009

7-year note auction draws tepid demand

The Treasury just held its much-anticipated 7-year Treasury note auction. The sale of $26 billion in 7-year notes was the third leg in this week's debt sales, which also included 2-year and 5-year auctions. So how'd the auction go? The notes sold at a yield of 3.3%, compared with pre-auction talk of 3.263%. The bid-to-cover ratio was 2.26, down from 2.28 at the last auction. Indirect bidders took down 33% of the notes sold, exactly the same as last month. In other words, not so hot. Long bond futures are trading right about where they were before the auction -- down 15/32 (around the day's low).

MBA Q1 delinquency and foreclosure rates rise to fresh records

The Mortgage Bankers Association released data on first quarter mortgage delinquencies and foreclosures this morning. This is what the numbers showed:

* The overall mortgage delinquency rate soared to 9.12% in Q1 2009 from 7.88% in Q4 2008 and 6.35% a year earlier. This is yet another record high for the delinquency rate (the MBA data goes back to 1972; chart shown above).

* The subprime DQ rate climbed to 24.95% from 21.88% a quarter earlier and 18.79% a year earlier. The prime-only DQ rate rose to 6.06% from 5.06% in Q4 2008 and 3.71% a year earlier. We are continuing to see the delinquencies migrate up the mortgage food chain, too. Even prime fixed-rate loans, the best historical performers, are doing much worse. The DQ rate there climbed to 4.68% from 3.92% a quarter earlier. Subprime ARMs continue to be the mangiest muts in the kennel, though. The DQ rate there hit 27.58%, up from 24.22% a quarter prior.

* The percentage of mortgages entering the foreclosure process jumped to 1.37% from 1.08% a quarter earlier. That is the highest level in U.S. history. The overall percentage of mortgages in any stage of foreclosure also jumped to a record 3.85% from 3.3% in Q4 2008.

* Regionally, delinquency rates were the highest in Nevada (11.75%), Mississippi (11.7%), Florida (10.67%), and Michigan (10.43%). North Dakota (3.31%) and South Dakota (3.52%) fared the best.

Mortgage performance is deteriorating across the board, with no "green shoots" to be found. Even FHA and VA delinquencies are starting to climb as the job market worsens and home prices continue to fall. Long ago, I predicted that the mortgage delinquency and foreclosure problems would migrate up the mortgage food chain -- from subprime, to Alt-A to prime. There is abundant evidence that this process is underway. Indeed, the delinquency rate on "cream of the crop" loans ... prime fixed rate mortgages ... has more than doubled in the past two years to a record-high 4.68%.

While mortgage modification programs will help save some borrowers, others are just too far gone. They lied about their incomes. They have no assets to fall back on. They're upside down on their homes. And/or they're losing their jobs. So we'll be coping with an elevated level of foreclosures for some time.

New home sales inch higher in April

We just got the new home sales figures for the month of April. What did they show?

* New home sales rose 0.3% to a seasonally adjusted annual rate of 352,000 from 351,000 in March. These numbers were somewhat worse than expected -- economists were looking for sales of 360,000.

* The raw number of homes for sale continued to decline, dropping to 297,000 from 310,000 in March. That is the lowest reading going all the way back to May 2001 (295,000). The months supply at current sales pace indicator of inventory fell to 10.1 from 10.6.

* The median price of a new home rose 3.7% on the month -- to $209,700 from $202,200 in March. But prices were down 14.9% year-over-year, the second-biggest decline in U.S. history behind January's 15% drop.

Stagnant. Stuck in the mud. Flatlining. All of these words sum up the current state of the housing market. We aren't seeing a huge upswing in market conditions. But we aren't seeing things fall apart again, either.

Falling prices are clearly spurring some buyers to action. New home prices fell at the second-fastest rate in U.S. history, helping sales inch up. The supply of new homes continues to fall as well -- with for-sale inventories running at the lowest level in eight years. But there is no evidence whatsoever of a renewed housing boom, just a gradual increase in activity in some markets, brought about by lower prices, lower mortgage rates, and tax and builder incentives.

The Fed's Catch 22

Watching the market action this morning, I can't help but think the Federal Reserve is in a total Catch 22 situation. It can signal a plan to increase its purchases of Treasuries and mortgages to hold rates down. Indeed, speculation about just such a move has driven long bond futures up almost two points in price from the lows they set in the wee hours of this morning. But if the Fed does that, it will tank the dollar and spike gold. Just look at the Dollar Index and spot gold -- DXY has been falling tick-for-tick with the increase in long bond prices, while gold has been rising tick for tick.

The alternative is to let the bonds go where they need to. But if the Fed goes that route in order to give some support for the dollar and to stop the relentless rise in gold and other commodities, mortgage rates and rates on other loans rise. Ergo, the economy takes a hit.

This just goes to show there is NO FREE LUNCH, no matter what the bureaucrats in Washington would have you believe.

Claims data mixed; Durables up; Fed to fight the market more?

The economic data continues to come fast and furious. This morning, we saw that durable goods orders surged 1.9% in April, far better than the 0.5% gain that was expected. Durables (ex-transportation) gained 0.8%, versus forecasts for a decline of 0.3%. However, nondefense capital goods ex-aircraft -- a key proxy of business investment -- fell 1.5%.

Initial jobless claims dipped to 623,000 from an upwardly revised 636,000 in the prior week. But continuing claims continue to ramp up. They climbed to a fresh record of 6.788 million from 6.678 million in the prior week.

Lastly, there's some speculation out there today that the Federal Reserve may step up its purchases in the mortgage and Treasury markets. But is fighting the market even more really the right strategy? I don't think so. The market is SCREAMING that this quantitative easing policy is gutting the U.S. dollar and fueling concerns about longer-term inflation risk. The long bond futures have plunged a whopping 26 points in price since mid-December. Yet Helicopter Ben is apparently digging in his heels. Does anyone in Washington get it?

Wednesday, May 27, 2009

The dam breaks in mortgages

As bad as things were in the Treasury market, they were even worse in mortgage-land. Mortgage backed securities tumbled in value, while yields soared (Some good stuff at this blog if you're interested). Street-level mortgage rates are likely rising by anywhere from 3/8 to 1/2 of a percentage point in response. Speaking of Treasuries, the pain just keeps on coming in the bond futures market. I'm showing long bond futures off 2 26/32 in extended trading.

5-year note auction okay, but not as good as the 2s; Bonds massacred again

Well, we survived the second leg of the government's debt sales just now. Uncle Sam was able to foist $35 billion in 5-year notes on the market at a yield of 2.31%. That was slightly better than pre-auction talk of 2.335%. Indirect bidders took down 44.2% of the notes being sold. The bid-to-cover ratio came in at 2.32.

Both of those readings were higher than the last auction. But they were nowhere near as strong (on a relative basis) as what we saw in the 2-year sale yesterday. For instance, you only have to go back to February to find a 5-year auction with a higher indirect bidder reading (48.9% on 2/25). And you only have to go back to November 2008 to find a higher B2C ratio (2.44 on 11/25).

UPDATE: My call in December that long-term Treasuries were caught up in the "Biggest bubble of all" is looking right on target. The bonds simply can't get out of their way. Long bond futures are down about 1 16/32 as I write, while 10-year Treasury Note yields have shot up by more than 10 basis points to 3.65%. Guess printing, borrowing, and spending money like a drunken sailor isn't the best strategy in the world, eh? Or as I said earlier, you're doing a heck of a job Brownie ... I mean, Bernanke.

Is the market open? Then sell bonds ... again.

The red-headed step children of the capital markets -- long-term U.S. bonds -- continue to get beaten mercilessly. Long bond futures were recently down 21/32 in price to 117 31/32. Ten-year Treasury Note yields are up about 1.5 basis points to 3.56%. The dollar, on the other hand, is trying to hold this 80-and-change level, with a gain of abouts 28 bps at last check. It'll be very interesting to see how the 5-year and 7-year note auctions go this week.

April existing home sales climb 2.9%; supply swells

We just got a look at April existing home sales figures. Here's a recap of what they showed:

* Existing home sales rose 2.9% to a seasonally adjusted annual rate of 4.68 million units from 4.55 million in March. That was roughly in line with the forecast for a reading of 4.66 million and down 3.5% from a year earlier. Single-family sales gained 2.5%, while condo and cooperative sales rose 6.4%. Sales climbed in three out of four regions -- by 1.8% in the South, 3.5% in the West, and 11.6% in the Northeast. Sales fell 2% in the Midwest.

* The raw number of homes for sale rose 8.8% to 3.97 million units from 3.65 million in March. That was down 12.8% from a year earlier, however. The months supply at current sales pace indicator of inventory swelled to 10.2 from 9.6, with single family inventory up to 9.6 from 9 and condo inventory inching up to 15.1 from 15.

* The median price of an existing home rose slightly to $170,200 from $169,900 in March. That was down 15.4% from $201,300 in the year-ago period, the second-biggest YOY decline on record.

The sideways chop continues in the housing market. We're seeing neither a large improvement nor a significant further deterioration in conditions. Notably, while April sales climbed, the supply of homes for sale rose much more quickly. That caused a key inventory benchmark -- months supply at current sales pace -- to vault back into the double-digits.

These figures just go to show that anyone expecting a drastic rebound in sales, or an imminent rebound in home prices, is going to be disappointed. We still have a large mountain of inventory we need to chisel away at. It won't happen quickly. And the only way we'll get those numbers down is through continued price-cutting -- by traditional home sellers and by the lenders and banks who are taking back record numbers of homes through the foreclosure process.

Tuesday, May 26, 2009

Is the market open? Then sell bonds ...

The selling just keeps on washing over the long-term bond market. After a brief bounce in the wake of the 2-year note sale earlier this afternoon, bonds rolled over. Futures are now down 1 6/32 at 118 4/32. The yield on the 10-year Note has risen another 9 basis points to 3.54%. The dollar is still up on the day, but barely. An earlier rally to 80.78 on the Dollar Index has mostly evaporated, with DXY up just 13 bps to 80.15 at last check.

2-year sale goes well, but that's not our real concern

The gubmint is flooding the markets with bond supply during this holiday-shortened week. We're looking at $101 billion in longer-term debt sales, a record-setting tally. Add in short-term bills, and you get a whopping $162 billion in debt sales ... in just four days!

The first leg of the sales went well. Forty billion dollars worth of 2-year notes were just auctioned off at a yield of 0.94%, slightly better than the forecast of 0.969%. Indirect bidding was strong at 54.4%, the highest since November 2006. And the bid-to-cover ratio was a healthy 2.94%, the highest since September 2007.

But the short end of the curve isn't our area of concern. It's the long end that has been getting hammered. Will we see decent demand for the five-year notes coming tomorrow? Or the seven year notes being sold later in the week? And what about the 10-year notes and 30-year bonds coming down the pike in future weeks and months? That's the real question for the bond market.

S&P/Case-Shiller: Home prices down 18.7% YOY in March

The latest S&P/Case-Shiller figures just hit the tape, and they continue to show home prices heading south. The 20-city index dropped 18.7% year-over-year in March, ever-so-slightly worse than the 18.67% drop in February.

On a month-over-month basis, prices slipped 2.17%. That was ever-so-slightly better than the 2.21% monthly decline in February and the smallest monthly drop since September. Prices declined in 17 out of 20 cities on a monthly basis and in all 20 cities on a YOY basis. The worst YOY drops could be found in Phoenix (-36%), Las Vegas (-31.2%), San Francisco (-30%), and Miami (-28.7%). Denver (-5.5%) and Dallas (-5.6%) performed the best.

Friday, May 22, 2009

"Selling America" redux

American assets continue to be sold aggressively. The Dollar Index is down 59 basis points to 79.94. The long bond futures are off 25/32 (the day's low). The 10-year Treasury Note yield is up just over 5 basis points to 3.42%. And gold is up more than $5 to around $960. When will someone in government come out and say "Bernanke, you're doing a heck of a job" I wonder?

UPDATE: Oops. Down goes Frazier! Bond futures just undercut their recent price lows. Down 1 1/32 at last count.

All you do to me is "Talk, Talk!"

Remember that catchy 80s song "Talk, Talk"? That's what I think of when I read stories like this. Treasury Secretary Tim Geithner keeps blathering about how he's concerned about U.S. borrowing and how he will -- somehow -- figure out a way to bring down the deficit over time. But it's all just that -- talk.

Everything the administration and Congress is actually DOING is driving the deficit up, not down. And the bailouts keep on coming. On top of the additional $7.5 billion GMAC got last night, it looks like we're going to shovel ANOTHER $30 billion into GM as part of a bankruptcy filing. It never ends.

Anyway, if you happen to enjoy talk, here's an excerpt from the Bloomberg story referenced above ...

"Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

"The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

"Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

UPDATE: I sure do enjoy the currency commentary of a guy named Jack Crooks (of Black Swan Capital). His latest missive has some great observations on what is going on. Here's an excerpt:

"We are in a gut wrenching transition in the global economy because the wildest orgy of debt the world has ever seen is over. Thus, excesses across all sectors, especially financial, must be removed from the marketplace in order for real quality long-term globally balanced growth to take hold. Instead, day after day we witness dinosaur saving from Geithner and friends, while stunningly they tell us this with a straight face (as straight as any government official possibly can) that we need to put more debt into the market in order to solve the problem of too much debt being in the market. Mr. Orwell call your office!

"Now granted, few of us have toiled away at the top economic Ivy League institutions and rubbed elbows and other things against the top seers. Granted, we don’t have the luxury of feeding our ideas and inputs into the most sophisticated econometrics models imaginable built of course by the "best and brightest." But it seems our angst grows from something the power elites don’t have — common sense.

"Putting more debt into a system desperately working to alleviate debt is just plain stupid no matter how the Neo-Keynesians slice or dice it. Is it any wonder why the globe is losing confidence in the dollar?"

Thursday, May 21, 2009

Treasury bonds getting crushed, gold flying, dollar falling

It is a massacre for U.S. assets today, with the Treasury Bond market getting crushed ... gold flying ... and the U.S. dollar tanking. Specifically, as I write, the long bond futures are off 2 13/32 in price. The yield on the 10-year Treasury Note is surging by 17 basis points to 3.36%. Spot gold is trading up by $16 to $955, while the Dollar Index is down 78 basis points to 80.38.

What is going on? Several things ...

* We've been hearing a lot of talk lately about the possibility that countries with large piles of reserves (think China) would start dumping Treasury bonds and shift into other reserve assets, like gold. The New York Times noted today that China isn't abandoning U.S. debt just yet. But it is getting "more choosy" about the maturities (buying short- rather than long-dated Treasuries) and types of debt (buying Treasuries instead of "agency" bonds) it's willing to buy. I was very worried about a large downward move in Treasury prices as far back as December, and now that move is unfolding before our eyes.

* Standard & Poor's cut its outlook on the U.K.'s sovereign debt rating to "negative" from "stable." That means the country's AAA rating is at risk. Britain is drowning in debt due to falling tax revenue and surging spending on bailouts and other measures. Its deficit is on track to hit 12.4% of GDP this fiscal year.

Hmm. Can you think of another country that sounds a lot like the U.K.? I sure can. In fact, I wrote about the similarities between the U.S. and U.K. back in March -- and warned that we were going to run into the same kind of problems as them. Now, it's happening.

* Finally, the government continues to bail out anyone and everyone, with no real regard for the cost of these bailouts. We just learned today that GMAC is going to get another $7.5 billion, and we learned yesterday that the PBGC may need its own bailout.

As a result, we are digging a deeper and deeper budgetary hole, one that we have to fill by selling monstrous amounts of U.S. debt. Investors are starting to rebel, just as we said they might in our white paper "Dangerous Unintended Consequences" back in March (see pages 40-42 of the linked PDF, if you like).

The bailout list just keeps getting longer

Sigh. It just keeps getting longer. I'm talking about the bailout list, of course. It looks like the Pension Benefit Guaranty Corp., or PBGC, is going to need a bailout due to its ever-deepening deficit. The agency's deficit is up to $33.5 billion, triple the level just six months earlier. And huge new obligations could be piled onto its books thanks to the Chrysler bankruptcy and the potential bankruptcy at GM. You can read more at the Washington Post.

Meanwhile, GMAC is going to pony up to the bar for another $7.5 billion in aid, according to the New York Times. That comes on top of $5 billion already shoveled into the giant real estate and auto financing lender. Doesn't anybody fail any more? Don't any American businesses actually survive on their own merits, not taxpayer money?

Continuing jobless claims pop again, S&P fires a warning shot over the U.K.'s bow

We just got the latest look at jobless claims and once again, the numbers weren't pretty. Initial claims came in at 631,000, above forecasts for a reading of 625,000. But the real news continues to be the fact that people who lose their jobs are not finding new work. Continuing jobless claims ramped up again to 6.662 million from 6.587 million a week earlier. That is a fresh all-time high.

In other news, Standard & Poor's cut its outlook on the U.K.'s sovereign debt rating to "negative" from "stable." That means the country's AAA rating is at risk. Britain is drowning in debt due to falling tax revenue and surging spending on bailouts and other measures. Its deficit is on track to hit 12.4% of GDP this fiscal year. Hmm. Can you think of another country that sounds a lot like the U.K.?

Tuesday, May 19, 2009

Housing starts, permits fall again in April; Weakness concentrated in multifamily

The government just provided its latest look at housing construction and permitting activity. Here's what the April numbers showed ...

* Total housing starts plunged another 12.8% to a seasonally adjusted annual rate of 458,000 from 525,000 in March. Building permits slipped 3.3% to 494,000 from 511,000. Economists were expecting 520,000 starts and 530,000 permits. These figures are fresh all-time lows.

* By property type, single family starts gained for the second month, up 2.8% to 368,000 units. Multifamily starts plunged 46.1% to 90,000. Single family permits rose 3.6% to 373,000 from 360,000, while multifamily permits tanked 19.9% to 121,000.

* Regionally speaking, starts dropped 30.6% in the Northeast, fell 21.4% in the Midwest, and dropped 21.1% in the South. Starts rose 42.5% in the West. The regional breakdown of building permits showed activity flat in the West, down 4.8% in the Midwest, down 3.4% in the South, and down 7.1% in the Northeast.

The home construction industry continues to weaken, with both starts and permitting activity plumbing fresh record lows. But the devil is in the details here. The weakness in April was concentrated in the multifamily sector of the market -- condos, apartments, and so on. That likely stems from the ongoing condo glut and the tighter financing conditions we've seen in the commercial real estate arena.

Meanwhile, both construction starts and permitting activity actually picked up in the single-family home market. We're still at remarkably low levels. We still have a large glut of homes for sale, particularly "used" ones. But these figures add to the evidence of potential stabilization in that part of the industry.

Monday, May 18, 2009

NAHB index ticks higher in May

We just got the latest National Association of Home Builders index data for the month of May. The figures were as follows:

* The overall index climbed to 16 in May from 14 in April. That was in line with the forecast of economists polled by Bloomberg and the highest since September.

* The subindex that tracks present single family sales climbed to 14 from 12. The subindex that tracks expectations about future sales rose to 27 from 24. Meanwhile, the subindex that measures buyer traffic held steady at 13.

* Regionally speaking, we saw gains in three out of four U.S. geographical areas. The index for the Northeast rose to 18 from 15, the index for the South inched up to 18 from 17, while the index for the West climbed to 12 from 8. The Midwest index was unchanged at 14.

May was another rebuilding month (if you'll pardon the pun) for the housing industry. The NAHB's gauge of market activity rose for the second month in a row, hitting its highest level since last September. Most geographic regions showed improvement, though the index measuring foot traffic among potential buyers leveled off.

Bottom line: Lower home prices, lower interest rates, and tax incentives have helped move some buyers off the sidelines to the closing tables. But the recovery process will likely take some time, given the still-large inventory overhang, mostly in the "used" home business.

Friday, May 15, 2009

CPI flat, Empire Manufacturing improves, production falls

More economic data continues to hit the tape. A quick recap: The Consumer Price Index was unchanged in April. That was a slight uptick from March's -0.1% reading. The core CPI rose 0.3%, up from the prior month's 0.2% gain. Overall CPI is now down 0.7% from a year earlier, the biggest drop since 1955, while the core CPI is rising at a 1.9% YOY rate.

Meanwhile, the Empire Manufacturing index was still in negative territory in May. But the -4.55 reading was an improvement from the -14.65 number for April. The new orders sub-index fell to -9.01 from -3.88, while the employment sub-index improved to -23.86 from -28.09. The index that tracks expectations about the economy six months down the road climbed to 43.8 from 33.1.

Market reaction? Not a heck of a lot in currencies and stocks. The dollar index is still up a bit, while stock futures are still down a bit. But bonds have given up almost all of their pre-data gains. The long bond futures were recently up 2/32 to 123 6/32 after touching 123 24/32 earlier. Gold is also popping to its morning high.

UPDATE: Industrial production dropped 0.5% in April. The prior month's decline was revised to -1.7% from the -1.5% originally reported. Capacity utilization fell to 69.1% from 69.4% in March.

Thursday, May 14, 2009

Jobless claims pop, PPI rises 0.3%

We continue to get a barrage of economic data, most of which continues to point to a troubled environment. Initial jobless claims popped to 637,000 from 605,000 in the previous week. That was well above the 610,000 level that was forecast.

More importantly, people who lose their jobs continue to have trouble finding new work. Continuing claims surged to 6.56 million from 6.358 million a week earlier. That was well above the 6.4 million forecast and a fresh all-time high. The chart above sure does speak volumes, doesn't it?

Meanwhile, the Producer Price Index gained 0.3% on the month. The core PPI rose 0.1%, in line with expectations. At the intermediate stage of production, prices fell 0.5% on the headline and 0.9% on the core. Crude goods rose 3% in price, though the core crude index fell 0.6%.

Wednesday, May 13, 2009

RealtyTrac: Foreclosure filings set a new record

Kicking the can down the road by instituting temporary foreclosure moratoriums helped suppress filings for a while. But those industry-led and government-mandated foreclosure "pauses" are behind us, and filings are rising once again. According to RealtyTrac, foreclosure activity rose 0.3% month-over-month to a new record high of 342,038 in April. That was also up 32% from April 2008, as shown in the chart above.

Tuesday, May 12, 2009

Dollar can't get out of its own way

Here we go again -- the Dollar Index can't get out of its own way. It's down about 75 bps to 82.08 at last check. Euro is now flirting with the 1.37 level (meaning one euro buys $1.37) and even the lowly British pound is coming off the mat.

This is continuing evidence the Fed and Treasury are throwing the dollar under a bus in an effort to try to "reinflate" the economy. Is that the right strategy? Bernanke certainly thinks so. He's trying to reinflate so the real burden of our crushing debts goes down. But it also has negative side effects. For instance, you can forget about those nice cheap gas prices you've been enjoying -- and soon (based on what's happening in the agricultural commodities market), cheap food prices, too.

I also believe the very low mortgage rates we've been enjoying are going to disappear soon. The Fed is trying to buy anything and everything out there (Treasuries, mortgage bonds). Yet bond prices are falling and rates are rising. That tells you nobody -- not even the Fed -- can fight the market forever.

Friday, May 08, 2009

Dollar plunging and its implications

Forget the stress test. The big story in the markets today is the plunging dollar. The Dollar Index is getting crushed, down 1.27 points to 82.66 at last count. For you technically inclined readers, it's also plunging through its 200-day moving average.

What's going on? The positive read is that this move signals a return to risk taking. Investors are selling the dollar because they no longer are flocking to safe havens.

The negative read? That the Federal Reserve and Treasury Department are completely out of control when it comes to banking bailouts, money printing, borrowing, and spending. We now have both falling bond prices and a falling dollar. If gold starts heading toward and through $1,000 an ounce as well, it will be a trifecta of signals that investors are losing faith in U.S.-denominated assets. My take, anyway.

Bad jobs news, just less bad than expectations

We just got another month of bad job market news. The economy shed 539,000 workers in April, the 16th month in a row of declines. But that was slightly better than the -600,000 number the market was expecting.

On the negative side, the March reading was revised higher to -699k from -663k. Meanwhile, the unemployment rate jumped from 8.5% to 8.9%, in line with expectations but the highest since September 1983. Average hourly earnings gained just 0.1%, versus forecasts for a reading of +0.2%.

Thursday, May 07, 2009

Bond sale bombs

Yikes -- did you see that intraday chart on the long bond futures? Nasty! The government just sold $14 billion of long bonds at a whopping 4.288% yield. That was far above pre-auction forecasts for a yield of 4.192%, according to Bloomberg. The bid-to-cover ratio came in at just 2.14, compared with a 10-auction average of 2.24 and a last auction showing of 2.4. Only 33% of the bonds sold to indirect bidders. That was above the 26.1% average of the last 10 auctions, but well below the 46.2% reading at the last auction. At last check, LB futures were off 1 29/32 after trading weak earlier in the session. Ten-year yields are shooting up 11 basis points to 3.3%.

And don't let anyone tell you no one saw this coming either. Here is my analysis from early December, in which I said that the Treasury market was well into bubble territory and that a "day of reckoning" was fast approaching.

Wednesday, May 06, 2009

Hope on the jobs front?

The ADP Employment report for April was just released and the numbers came in better than expected. The economy shed 491,000 jobs last month, according to ADP. That compared with a revised -708,000 reading for March and expectations for a -645,000 print. A separate report on layoffs from Challenger, Gray & Christmas showed that companies announced 132,590 job cuts in April. That was up 47.3% from a year earlier, but down from 150,411 in March.

Some hope on the jobs front? Certainly the numbers are bad, but somewhat less bad than we've been seeing recently. Bond futures are down about 11/32 as I write. Ten-year yields are pushing 3.18%. The ranks of the "upside down" grow

Sorry I've been offline for a few days. Had a lot of things to take care of and some time off. Now, back to business. is out with the firm's latest report on "upside down" homeowners -- those who owe more than their homes are worth. The real estate data company estimates that 21.8% of U.S. homeowners are now underwater on their mortgages, up from 17.6% in the fourth quarter of 2008. Zillow's data covers 161 metropolitan areas. More data is available here.

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