6/26/09

We had a nice little improvement in rates yesterday (prices up, rates down), and a nice improvement in the stock market due to an enormously strong 7yr note auction that drew higher demand from foreign central banks than in previous auctions. Folks who think that every time the stock market moves in one direction rates should move in the opposite direction are not always correct. This morning however, mortgage backed securities (MBS) prices are lower (rates higher) after yesterday's substantial gains. Expectations that the Fed will keep interest rates low have increased; traders now see a 46% chance of a rate hike in 2009, down from about 90% a week ago. Personal income surged in May, more than expected, though nearly all the gain is related to temporary fiscal stimulus. The savings rate has reached a 15 year high, indicating the economic recovery will be slow to develop. Consumer spending rose for the first time in three months, a sign that efforts to revive the economy may be starting to pay off and Consumer Sentiment showed a slight improvement.

Today for news we have Personal Income and Consumption (in recent years popularly known as “spending, along with the Michigan Consumer Sentiment Survey around 7AM PST. The bond market is relatively quiet ahead of this, but be wary today of a sell off as it is a Friday after a strong run up in prices. Have a great weekend.