Market Guide Update - Thursday, May 13, 2010 10:45am ET
Current Trend Direction: Sideways, Battling Resistance
Risks favor: Carefully Floating
Current Price of FNMA 4.5% Bond: $101.19, +16bp
Mortgage Bonds are firmer this morning, but are still hovering right around the dual layered ceiling of resistance. Bonds appear to be trading higher from both a softer than expected Initial Jobless Claims number, as well as optimism about this afternoon's 30-Year Bond auction.
Initial Jobless Claims were reported with 444,000 people filing for unemployment benefits for the first time last week, just slightly higher than expectations of 440,000 filings. These numbers have remained stubbornly high, and somewhat contradict the recent positive tone of the past couple of Jobs Reports.
Those continuing to receive unemployment benefits for at least 26 weeks increased by 12,000 to 4.63M. But the most troubling numbers in the report are the additional 5.13M people claiming EUC (Emergency Unemployment Compensation), which are benefits lasting longer than 26 weeks, up to 99 weeks in total. A staggering 10M people collecting benefits is not only an enormous drain on the economy, but it skews the real unemployment rate. More and more reports confirm the common sense notion that many people will justify that it makes more financial sense for them to collect unemployment for two years, rather than find a job.
At 1pm ET, The Treasury will report the results of the $16B 30-Year Bond auction. Since yields have risen a bit, they may be more attractive to investors, especially amidst the continuing unpredictable nature of the European financial markets. We'll have to watch this carefully, as a disappointing auction will trigger a sell-off in Mortgage Bonds.
We will start the day by Floating, and monitor the auction results carefully.
- Richard Sellers
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