April 8th, 2011 11:47 AM by Lehel S.
Treasuries and mortgages under pressure early this morning with stock indexes looking better for the open at 9:30. At 9:13 the 10 yr -12/32 at 3.59% working to test 3.60%, mortgage prices at 9:15 -7/32 (.22 bp). At 9:30 the DJIA opened +35, 10 yr -12/32 3.59% and mortgage prices -.22 bp.
Crude oil continues to increase on unwavering concerns that oil supplies may be in some kind of jeopardy of decline although so far that hasn't been the case as oil now setting another record. Gold higher also this morning as most (except the Federal Reserve) are increasingly concerned that inflation will edge higher. The Fed of course lead by Bernanke doesn't believe inflation is now, or will be in the future, a problem. Within the Fed there are about as many opinions about ending QE or increasing the FF rate as there are officials which seem to multiply daily. Markets however are not as optimistic on the inflation outlook; inflation is increasing everywhere in the world except the US and it isn't logical that US markets will accept Bernanke's outlook.
The only thing today is the budget battle in Washington where the political misfits continue to argue over five-one thousandths of 1.0% of the total budget. Republicans, Democrats, the White House and tea party people cannot agree to make a $5B additional cut to keep the government from shutting down. Likely it will get done before a shutdown becomes necessary but we shiver at the prospect of our elected officials being able to deal with the budget in 2012 that will (or should) include increases in revenues and cuts in entitlement programs. As always is the case all of them will be more concerned with being re-elected than doing the peoples business.
At 10:00 the only data point, Feb wholesale inventories were expected up 1.0%, as reported up 1.0%; sales were however down 0.8% on expectations of being up 1.8%, the inventory to sales ratio at 1.16 month from 1.14 months in Jan. . This week there hasn't been much in the way of economic measurements; inventories don't get much attention from traders.
This morning the 10 yr note is testing 3.60%, the level that should hold the note at least for the day. If it gives way the next run will take it to 3.75% and push up mortgage rates another 15 basis points in rate. The rest of the day for the bond and mortgage markets will be watching the trade in equities; the DJIA opened +35 but within 10 minutes it slipped back to +17. All of our models and technical indicators are giving off bearish readings now.