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Market Commentary

Market Commentary

December 31, 2014
10-YEAR NOTES   100-19.5 (+02)
FN 3.5% COUPON   104-06 (+01.5)
SUPPORT   2.42%
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The market closes early today at 11:00 AM PST in recognition of New Year’s Eve, and will be closed tomorrow for New Year’s Day. More people filed for unemployment than expected last week with Initial Jobless Claims at 298K vs. 280K prior (consensus 290K). Continuing Claims fell to 2353K vs. 2403K prior (consensus 2368K). Pending Home Sales for October fell -1.1% and for November expectations are for a +0.5% rise.
Yesterday, treasuries rallied for the third consecutive day as political tensions in Greece, crude oil price declines (largest annual decline since 2008), a strong dollar, and persistently low inflation levels spurred demand for safe haven assets. The 10-Year note rallied +4.0 ticks pushing yields down -2.2 bps to 2.194%. The coupon stack compressed (slightly), tightening -1.0 tick in the belly coupons, and MBS underperformed treasury hedges by 1.0–1.5 ticks. The curve bull steepened with 2s10s up +0.8 bps to 150.2, pushing the 20 day average to 157.7 vs. 165.2 prior. Long-End yields fell, with the 30-Year bond down -7.2 bps to 2.833%. The 30-Year current coupon declined -1.0 bps on the day to 2.85% and the 15-Year followed suit, down -2.0 bps to 2.09%. The G2/FN declined 1.0-1.5 ticks in the production coupons led by a -1.5 tick decrease in the 4.5% coupon. The G2/FN 3.5% swap came in flat at 0-21.25. Today treasuries are coming off session highs in response to the higher than expected number of claims and the curve continues to bull steepened with 2s10s up +0.5 bps and MBS underperforming.
This Week's Events:
12/31 Initial Jobless Claims 05:30 December 27 290K 298K 280K 281K
12/31 Continuing Claims 05:30 December 20 2368K 2353K 2403K 2406K
12/31 Pending Home Sales MoM 07:00 November 0.5% 0.8% -1.1% -1.2%
01/01 Market Closed - - - - - -
01/02 Manufacturing PMI 06:45 December F 54.0 - 53.7 -
01/02 Construction Spending MoM 07:00 November 0.4% - 1.1% -
01/02 ISM Manufacturing 07:00 December 57.5 - 58.7 -
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