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Market Commentary

Market Commentary

January 06, 2015
10-YEAR NOTES   102-13 (+15)
FN 3.5% COUPON   105-03.5 (+07)
SUPPORT   2.42%
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Markit PMI Services Flash Index slowed in December, to 53.6 vs. 56.2 in the final November reading and 56.3 in the mid-month November reading. The final reading for the December Markit PMI Services Flash Index is expected to edge up to 53.7. Factory Orders slipped -0.7% in October, following a -0.5% decline in September, with durables up +0.3% vs. -0.7% prior and Non dura bles down -1.5% vs. -0.2% prior. Expectations for November’s Factory Orders are for a slight decline of -0.5%. The ISM non-manufacturing survey for November posted 59.3 vs. 57.1 in October and is expected to fall to 58 for December.
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Yesterday, treasuries continued their rally into the sixth consecutive day as falling oil prices (below $50 a barrel) and a strong dollar continue to dampen the outlook for inflation. The 10-Year note rallied +24.5 ticks, pushing yields down -8.6 bps to press against resistance at 2.038%. The coupon stack compressed, tightening 3-6 ticks in the belly coupons, and MBS performance was mixed with the lower coupons outperforming and the higher coupons underperforming treasury hedges. The curve bull flattened with 2s10s down -8.2 bps to 137.5, pulling the 20 day average to 153.9 vs. 169.1 prior. Long-end yields fell, pushing the 30-year bond to the lowest level in more than two years, down -9.1 bps to 2.606%. The 30-Year current coupon declined -9 bps on the day, to the lowest level since May 2013, closing at 2.68% and the 15-Year followed suit, down -7 bps to 1.96%. The G2/FN declined 1.0-2.0 ticks in the production coupons led by a -2.5 tick decre ase in the 3.0% coupon. The G2/FN 3.5% swap declined to 0-20.25 vs. 0-22.25 prior. Today treasuries are continuing their advance, pushing below resistance, and the curve’s bull flattening persists with 2s10s down -3.6 bps and MBS underperforming treasury hedges by 2-3 ticks into the rally.
This Week's Events:
01/06 Factory Orders 07:00 November -0.5% -0.7% -0.7%  
01/06 ISM Non-Manufacturing Composite 07:00 December 58.0 56.2 59.3 -
01/07 MBA Mortgage Applications 04:00 January 2 - - - -
01/07 ADP Employment Change 05:15 December 225K - 208K -
01/07 Trade Balance 05:30 November -$42.0 Billion - -$43.4 Billion  
01/07 FOMC Minutes 11:00 December 16-17 - - - -
01/08 Initial Jobless Claims 05:30 January 3 290K - 298K -
01/08 Continuing Claims 05:30 December 27 2360K - 2353K -
01/09 Nonfarm Payrolls 05:30 December 240K - 321K -
01/09 Unemployment Rate 05:30 December 5.7% - 5.8% -
01/09 Wholesale Inventories MoM 07:00 November 0.3% - 0.4% -
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