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Market Commentary


Wednesday
January 07, 2015
10-YEAR NOTES   102-17 (-07)
1.968%
FN 3.5% COUPON   105-05.5 (-03)
SUPPORT   2.40%
RESISTANCE   1.86%
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    MBA Mortgage Applications reversed the prior week’s 18.2% loss with a +11.1% advance for the week ending January second. Purchases increased +4.5% vs. -9.1% prior (-8.2% YoY), Refinancing rose +16.0% vs. -24.3% prior (-1.9% YoY), and the average interest rate for a 30-Year conventional conforming loan declined -3 bps to 4.01% vs. 4.72% a year ago. ADP Employment Change came in strong at 241K vs. consensus of 225K, with the prior revised up +19K to 227K. The goods and services deficit was $39.0 Billion November, down -$3.2 Billion from $42.2 Billion in October (revised). November’s decline in the Goods and Services Deficit reflected a -$3.3 Billion decrease in the Goods Deficit to $58.3 Billion and a -$0.1 Billion decrease in the Services Surplus to $19.3 Billion. At 11:00 AM (PST) the Fed will release the minutes from its December 16-17th meeting.

    Yesterday, treasuries continued their rally into the seventh 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 +20.5 ticks, pushing yields down -6.9 bps to push through resistance at 1.969%. The coupon stack compressed, tightening 3-5 ticks in the belly coupons, and MBS underperformed treasury hedges by 1-3 ticks with the lower coupons outperforming the higher coupons. The curve continued to bull flatten with 2s10s down -4.7 bps to 132.9, pulling the 20 day average to 151.7 vs. 170.5 prior. Long end yields fell, pushing the 30-Year bond to the lowest level since July 2012, down -8.1 bps to 2.523%. The 30-Year current coupon declined -7 bps on the day, closing at 2.63% and the 15-Year followed suit, down -3 bps to 1.94%. The G2/FN declined 1.5-3.5 ticks in the production coupons led by a -2.25 tick decrease in the 3.5% coupon. The G2/FN 3.5% swap declined to 0-18.25 vs. 0-20.5 prior. Today treasuries are declining ahead of the FOMC minutes release, and the curve has bear flattened with 2s10s down -0.2 bps with MBS underperforming treasury hedges.
 
This Week's Events:
 
DATE EVENTS TIME (PST) PERIOD SURVEY ACTUAL PRIOR REVISED
01/07 MBA Mortgage Applications 04:00 January 2 - 11.1% -18.2% -
01/07 ADP Employment Change 05:15 December 225K 241K 208K 227K
01/07 Trade Balance 05:30 November -$42.0 Billion -$39.0 Billion -$43.4 Billion -$42.2 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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