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Market Commentary

Market Commentary

February 04, 2015
10-YEAR NOTES   103-26 (-12.5)
FN 3.5% COUPON   105-07.5 (-04.5)
SUPPORT   2.40%
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   MBA Mortgage Applications for the week ended January 30th rose +1.3% after falling -3.2% the week prior. Purchases fell -2.3% vs. -0.1% prior (+2.7% YoY), Refinancing rose +2.5% vs. -5.1% prior (+57.7% YoY), and the average interest rate for a 30-Year conventional conforming loan declined -4 bps to 3.79% (4.47% a year ago). ADP Employment Change cooled in January to 213K (consensus 223K) and the prior month was revised up to 253K from 241K. The ISM Non-Manufacturing Composite slowed in December to 56.2 after a strong 59.3 in November. For January ISM Non-Manufacturing posted largely in-line with expectations, edging up to 56.7 and the prior month’s number was revised up to 56.5 from 56.2.
   Weakness in the global economy continues to drive demand for U.S. safe haven assets and support treasuries. The dollar is beginning to come down from January’s +3.3% rally (MoM), down -1.04% yesterday, a sign that the global economic slowdown is hampering U.S. growth. The S&P began to reverse the prior week’s -2.8% loss, up +1.05% yesterday, and although it is still a weekly net loss we look for another push higher today. Declining Oil prices and wage pressures in the refinery sector have led to the biggest strike at U.S. refineries since 1980; the strike accounts for approximately 10% of the nation’s capacity. The refinery workers Union is seeking to double the prior contract’s annual pay increases to +6%. West Texas Intermediate (WTI) futures advanced +$3.48 yesterday to $53.05 per barrel, for the fifth consecutive day of gains. The Euro rose +1.7% yesterday, for the strongest level in two weeks to 1.15285 Euro per dollar. Greece’s bonds declined yesterday pushing 10-Year rates to 9.59% as the newly elected leaders attempt to renegotiate the nation’s debt obligations. The ruble strengthened yesterday as rising oil prices helped ease the pressure on the nation’s finances; the Ruble advanced +3.6% to 66.049 per dollar.
   Yesterday, the 10-Year note plummeted -31 ticks, which pushed yields up +10.9 bps to 1.779%. The coupon stack compressed 3.0-5.25 ticks in the production coupons led by the 3.5/3.0 swap, up +5.25 ticks. MBS outperformed treasury hedges by 4-4.5 ticks led by the 3.0% at +4.5 ticks tighter to the basis. Short term Volatility rose +3.07 bps (3Mx10Y 89.82), and longer term Volatility rose +0.96 bps (5Yx10Y 86.19). The curve bear steepened, with 2s10s up +7.0 bps to 127.4, pulling the 20 day average to 131.8 vs. 136.2 prior. Long-end yields rose, pushing the 30-Year bond up +11.9 bps to 2.371%. Even with the 30-Year bond near all-time record low yields treasuries are still looking attractive vs. lower, and some negative, returns with foreign debt. The 30-Year current coupon increased for a second consecutive day, up +8.0 bps to 2.54% vs. 2.46% prior, and the 15-Year followed suit, up +6.0 bps to 1.85 vs. 1.79% prior. 15/30 swaps gained 2.0-6.5 ticks led by the 2.5/3.0 swap at -6.125 ticks tighter. G2/FNs gained 2.0-5.0 ticks led by a +5.0 tick advance in the 4.0% coupon. The G2/FN 3.5% swap rose to -1.0 ticks vs. -4.0 ticks prior. This morning treasuries are continuing the prior day’s sell-off and bear steepening persists with 2s10s up +0.8 bps and yield on the 10-Year note at 1.822%.
This Week's Events:
02/04 MBA Mortgage Applications 04:00 January 30 - 1.3% -3.2% -
02/04 ADP Employment Change 05:15 January 223K 213K 241K 253K
02/04 ISM Non-Manufacturing Composite 07:00 January 56.4 56.7 56.2 56.5
02/05 Jobless Claims 05:30 January 31 290K - 265K -
02/05 Continuing Claims 05:30 January 24 2400K - 2385K -
02/05 Trade Balance 05:30 December -$38.0 Billion - -$39.0 Billion  
02/06 Nonfarm Payrolls 05:30 January 230K - 252K -
02/06 Unemployment Rate 05:30 January 5.6% - 5.6% -
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