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Interest Rate Market

Monday, April 8, 2013 - Article by: bcahoone - Global Home Finance Inc - Message

This week follows on the best week's we have had recently in the interest rate markets. Today should however see some pressure in bonds and mortgages after such a deep decline in rates last week. There isn't a lot of data this week, March retail sales is the most critical with questions about how consumers are spending. Last week's two ISM indexes were weak, the March employment report was very disappointing with only 88K new jobs and thousands more dropping completely out of the job market. This week starts earnings season for Q2, Alcoa always leads the way and will report on Monday evening.

Probably the most important thing this week is the releases of the FOMC minutes from the 3/21 meeting. Markets will be looking for how discussions developed about how and when the Fed will begin withdrawing frm the easing's. After the weakness in most economic reports over the last couple of weeks it isn't likely now that the Fed has any plans to cut back, at least for now. That said, the Fed is talking and discussing the eventual withdrawal the is the main force keeping stock markets moving higher. This evening Ben Bernanke will be speaking in Georgia on Financial Stability; not a direct speech about the economy but in Q&A he will be asked about the March employment data and what if any it means for QEs, will there be more---or less of it?

After Friday's employment report those at the Fed that have been arguing a withdrawal from the QEs won't have nearly the leverage they may have had. 88K new private jobs and only 63% of all eligible workers still in the job market, the idea that the Fed would consider easing off the $85B of monthly purchases of MBSs and treasuries has lost most all credibility. There is however an argument that can be made, that the Fed's easy money policy appears to be losing its effectiveness.

This week Treasury will auction $66B of notes and bonds beginning Tuesday through Thursday.

Early this morning the 10 yr note yield was up a basis point to 1.72%, 30 yr MBSs started a little soft but by 9:30 the 30 yr FNMA coupon was unchanged frm Friday's close. US stock indexes were better at 8:30 than at 9:00; at 9:30 the DJIA opened -24, NASDAQ +3, S&P unch; 10 yr note 1.72% +1 bp.

German production rose 0.5% from January, when it contracted a revised 0.6%, the Economy Ministry said today. Economists forecast a 0.3% gain, according to the median of 41 estimates in a Bloomberg News survey. From a year earlier, production dropped 1.8% when adjusted for working days. The better production data supported Europe's stock markets.

In the EU; over the weekend Portugal's courts ruled against a plan by the government that was going to help meet the requirements for continued assistance frm the European Commission, the IMF and the ECB for its banking sector and debt problems. It was ruled unconstitutional to cut pay for government workers and cut the pension plans, singling out just one segment of the economy. Now Portugal has to come up with another plan in order to continue getting funds frm the troika.

Margaret Thatcher, the former British prime minister who became one of the most influential global leaders of the postwar period, died on Monday, three decades after her championing of free-market economics and individual choice transformed Britain's economy.

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