AM Market Update

Very late yesterday afternoon in the Q&A after Bernanke’s speech he responded to questions about the Fed’s intentions. Bernanke blew up the bond and mortgage markets a month ago with his comments the Fed was essentially preparing to begin reducing the monthly purchases of treasuries and mortgage-backed securities. He and the majority of FOMC members were seeing the economy improving and the Fed wouldn’t need to continue to its $85B of monthly purchases. Since his remarks on 6/19 the 10 yr note rate increased 50 basis points and 30 yr mortgage rates climbed 60 basis points in rate. Bernanke was obviously shocked at the swift and deep market response; yesterday more market manipulation. He called for maintaining monetary stimulus. Bernanke said yesterday that “highly accommodative monetary policy for the foreseeable future is what’s needed” and minutes of the Fed’s June meeting showed officials would want to see more signs of job growth before starting to scale back their $85B-a-month bond purchases. The Fed is continuing to manipulate markets with contrary comments; one month after saying the Fed was about to reduce its QEs, now he told markets, not so fast people. The 10 yr note rate at 4:45 yesterday afternoon at 2.68%, this morning 2.58%; 30 yr MBS from prices at 4:45 yesterday have increased 54 basis points.

 

This morning at 8:30 weekly jobless claims were expected to be down 6K, claims actually increased 16K to 350K. The 4 week average increased 6K. The report falls right into Bernanke’s remarks yesterday that the economy still needs stimulus. The jump in claims however, may be due more to auto plants that close for re-tooling for the new model year.

 

At 9:30 the DJIA opened into a new all-time high, up 124, NASDAQ +37, S&P +13. 10 yr note at 2.59% -8 bp frm yesterday and 30 yr MBS price +34 bps.