7/10/09

Good morning. The Fed purchased $17.05bn net in agency MBS over the past week, bringing its total net purchase to $638.6bn. Over ½ of their allocated funds have now been used. This, no doubt accounted for the strong performance recently of mortgage securities, relative to Treasury prices. Wall Street traders say that buyers from Asia, money managers, and the Fed have all been in buying MBS’s – even the higher coupon mortgage product.

Yesterday was another light news day, with initial Jobless Claims being much lower than expected, but continuing Jobless Claims were much higher than expected. No supply worries for at least another 10 days before markets stare down another round of Treasury borrowing with 2, 5s and 7 yr note on 7/28, 29, and 30. In the meantime after this week with little economic measurements, next week's calendar has a lot to digest that will have impact on equities and the bond and mortgage markets.

GM will emerge from bankruptcy today, a speedy move that many were very skeptical about the time it would take. The best assets of GM will be put in a new company owned by you and me. Shifting assets to the new company allows GM to shed half its U.S. brands, cut more than 6,000 U.S. salaried jobs and idle or close 16 factories. Chief Executive Officer Fritz Henderson has said he will shrink top management by more than a third and speed up decision making. Good Luck to the new GM.

Trade volume is low as we move deeper into summer and with nothing to work from other than moving back and forth with how the equity market performs. It is the same story; stocks rally, rate markets swoon, stocks decline rate markets find support. Being Friday activity is likely to be quiet unless traders make a heavy move to dump equities, and that does not appear likely today. Next week economic data re-emerges with no treasury supply pressures. Let me know if you have any questions and have a great weekend.