The bond market opened to an unfriendly interest rate environment. While modest overnight improvements in global equities were not a helpful catalyst toward our "relief rally", the most influential pre-market headline was news that the Obama Administration was planning on getting more involved in the financial markets, this time with a proposal to limit the size of banks and their risk taking/profit making strategies.
Ironically, shortly thereafter Goldman Sachs announced a $4.95 billion Q4 profit which works out to $8.20 a share on $9.62 billion in revenue. Estimates called for $5.20 a share on $9.65 billion in revenue. Goldman tightened up by reducing its bonus pool (good timing) and donating $500 million to charity. READ MORE. Goldman continues to be the preeminent trading firm on the Street.
Of course these numbers were taken well by stock trader, but were quickly offset by worse than expected Jobless Claims data....
Jobless Claims unexpectedly rose by 36,000 to 482,000 in the week ending Jan16. The market was expecting 440,000 new claims so this print was MUCH WORSE THAN EXPECTED. Continued Claims fell 18,000 to 4.599 million which was pretty much on the screws. Emergency/Extended benefits rose by 613,000 heads to 5.92 million. WHOA!
Besides the jump in emergency/extended benefits, here is another interesting observation...look at seasonallly unadjusted claims below.
UNADJUSTED INITIAL JOBLESS CLAIMS FELL 154,194 TO 650,728 FROM 804,922 LAST WEEK
Dow Jones is reporting that an economist at Labor said the spike was due in part to a backlog from Christmas and New Year's. "It is not an economic thing it is an administrative thing." Some states had claims offices working six-day weeks to handle the extra flow. This would mean that claims should have been somewhat higher in the past couple of weeks, if lower this week. He also added that seven states had estimated figures due to the holiday.
While some may discount today's rise in initial claims thanks to an "administrative" adjustment made by the Labor Department (see unadjusted data), stock bulls cannot escape the spike in Emergency/Extended benefits.
Anyway...the outcome of the above technical/fundamental tug of war in the bond market has been a return to status quo. After much commotion we are pretty much right back where we went out yesterday afternoon. No better and no worse.
The FN 4.0 is currently +0-00 at 97-26 yielding 4.209% and the FN 4.5 is +0-00 at 100-25 yielding 4.425%. The secondary market current coupon is 4.403%. The current coupon yield is 73 basis points over the 10yr TSY note yield and 63 basis points over the 10yr swap rate. "Rate sheet influential" MBS coupons are outperforming their weaker benchmark big brother TSYs.
I will save you the rational explanation for the time being and get to the point....
I am starting to feel a bit more anxious about the relief rally retracement...meaning our "day to day" lock float guidance is looking more toward a lock than a float. Trading has been VERY VERY slow to start the day...this is a sign that market participants are trying to sort through the mess of politcal rhetoric (health care and bank regulation) and asterisk filled econ data (labor department says the holiday season caused administrative issues which leaked through to data). I am feeling EXTRA DEFENSIVE at the moment and would be looking to do some "position squaring" aka take profits and wait for the outlook to clear up a bit. If you are floating several loans this means I think you should be taking recent gains on more than half of them. GUTFLOP. After that get back to your purchase marketing...
NEXT EVENT: Leading Indicators at 10am. TSY supply terms at 11am
PS. Not to confuse if youre debating lock or float...dont overlook the stock lever for support in the bond market. Look for the S&P to find support between 1130 and 1135. If broken, bonds could catch a flight to safety bid and MBS prices would benefit. On another note, tt would be funny, after 6 months trying to predict a slowdown in equity side optimism, that stocks would consider consolidation right after I say the S&P target is 1200. This is why I like to trade numbers not emotions...