Market Update 1/28/2011

GDP, our country’s gross domestic product, grew 3.2% in the 4^th quarter 2010, a touch below expectations of 3.6%.  Consumer spending gave the number its biggest kick, up 3.0%.  That component had the biggest gain in more than four years.  The Employment Cost Index, another component of GDP, rose .4% which was the second smallest gain on record.  Traders follow that number closely as it has a direct correlation to wage inflation.  The University of Michigan Sentiment Survey was also released, dipping .3 to 74.2.  The current conditions index did the trick, falling nearly 4 points as American’s question the need to purchase big ticket items.  Market reaction to all of the above was not good for bonds or stocks in the early going.  Since the open, bonds, notes, and mortgage backs have made a comeback with the 10 year note currently up 9/32’s (yield 3.35%) and mortgage backs unchanged (they were off 3 to 4/32’s in the early trade).  We priced down 2/32’s so you will need a little more juice on MBS trading to get a price improvement.  Stocks are helping our cause, now off over 70 points on the big board.  We like the market today and Monday, based on the add needs in duration for fixed income portfolio’s.  After that, all bets are off since the market will be driven by a new month and data ranging from Construction Spending to Big Daddy, the Employment Report for January.  Have a great weekend.

Scott S. Eggen
Senior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252

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© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.

Market Update 1/27/2011- 7 Year Note Auction

As we suspected, the early morning trade was being sat on by traders looking to buy the auction cheap.  It’s one of the things money managers try to do, talk or sell the market down so they can buy auction paper at the best level possible.  Check out the results; 29 billion came at a yield of 2.744% with 52.1% going to the Indirect Bidders (very good).  Bid to cover a respectable 2.85 to 1 bid and like the 5 year auction, the issue priced through the screen by 1.9 bps (excellent).  In other words, buyers of the issue were stacked deep and had to bid up if they wanted the paper.  Give this one a solid B to B+.  As a result of auction, notes, bonds, and mortgage backs have all caught a bid.  10 year note is plus 9/32’s (yield 3.39%), mortgage backs up 5/32’s, 30 year bond up 10/32’s, and ever the Dow is plus 9. 

Scott S. EggenSenior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company18111 Preston Road, Suite 900Dallas, Texas 75252

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© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.

Market Update 1/27/2011

Bond bullish data hit the early morning tape from many fronts. First up, Weekly Unemployment Claims jumped 51K to 454K, the highest level in nearly three month. Weather factors, primarily snow storms in the South and seasonal adjustments are being blamed for the rise. Still, the moving average, which is probably a better number to key off, rose to 428K. A sign that employment is still struggling. Continuing Claims also were on the move, up 94k to 3.99 million. Although Weekly Claims are volatile, the saw tooth pattern of late is not one that shows positive growth in hiring. For the economy to get going, this should be the focus of the gang on Capitol Hill. Bond bull release number 2, Durable Goods orders. This index fell 2.5% and when we strip out transportation, the index was plus .5%. Market expectations were for gains of 1.5%. Capital Goods orders were the biggest loser, falling 6.0%. Overall, the index has worsen four of the last five months. Completing the hat trick was Pending Home Sales which rose 2.0%. The number was close to expectations but revisions lower in November and expectations of a great number, following yesterday’s Existing Home Sales, just didn’t happen. As we all know, it is going to be slow going in the housing industry. On balance, all of the above should have goosed our market higher, giving us a nice little rally. Not to be as the early trade had mortgage backs flat to up 1/32nd. Currently, most markets have slipped into the red as the 10 year note is off 3/32’s (yield 3.44%), mortgage backs off 2/32’s, and stocks off 8 points on the big board. Our thinking is that note/mortgage backs have backed up a touch to accommodate today’s 29 billion of 7 year notes. Auction deadline is high noon cst. We'll give you the play by play post release.

Scott S. Eggen
Senior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252

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© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.

Market Update - 01-26-2011 - 5 Year Note Auction

Just a couple of thoughts and a chart to boot as we close out the day. Good 5 year note auction, nothing new brewing at the FOMC, yet sellers out the curve ( 10 year notes through 30 year bonds) ruled the day. Sidelined money bought both the stellar 5 year auction and dovish FOMC release only to be stepped on by fast money traders looking to set up steepening trades. This is where they buy the short end of the yield curve ( 2 year through 5 year paper) and sell the long end (10’s through 30’s). Part of this is a set up for tomorrow’s 7 year note auction, hedging it up before they have to enter the bidding. The bigger part, in my opinion, is a vote of no confidence in the Fed to do the right thing with respect to inflation. Call it enabling as notes, bonds, mortgage backs, or for that matter, anything fixed income hates inflation. There are a couple of bright spots to talk about. First, take a look at the chart below. This is a bar chart of 10 year note futures. Let’s focus on the time frame (bottom of chart) from 25-07:20 to 26-13:20. This period of time is the opening of trading on Tuesday to today’s close. Yesterday, we had a nice rally, taking the market about 1 point higher from 120 03 to 121 03 as buyers wanted to be long going into the State of the Union address. Once the “news” hit the wire, sellers followed. Looking at today’s trade, we held within the confines of yesterday’s levels. This is called an inside day. Neutral in bias, not bullish or bearish. The key level to watch out for is represented at 3.49% yield on the 10 year note (currently 3.42%). A trade above that yield will worsen our pricing by about .75. So far, it’s not in the cards. One of the reasons for that can be found in the latest Barclays Fixed Income Extension Need Index. This index is generally regarded as the bible that fixed income funds (pension, mortgage backed funds, bond funds, mutual funds for fixed income, etc.) must comply with to meet duration needs within their prospectus. In other words, they must comply. The extensions for this month are quite high, .09 years for Treasuries and .18 years for Mortgage backs. What it means is that funds will need to buy to meet duration needs, supporting our market. Good stuff coming into month end. Tomorrow we’ll take a look at Weekly Unemployment Claims, Durable Goods orders, Pending Home Sales, and the KC Fed index. Lots of data to once again move the market. We kind of like it (market), at least into month end. Hope I’m noting eating my chart this time tomorrow! Have a great night.

Scott S. Eggen
Senior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252

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© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.

Market Update 1/25/2011

This morning was the release of the S&P Case Schiller Home Price Index.  For November, the numbers show more weakness in home prices.  On a non-seasonally adjusted basis, the 20 city index fell .97% with the majority of metropolitan areas dropping more than 1.0%.  Prices are 1.59% lower in November versus year-ago levels.  Factoring in seasonal adjustments, prices fell .54% month over month and 1.61% year over year.  Among the 20 metropolitan areas that suffered greater than 1.0% declines month over month in November were Atlanta (-2.13%), Chicago (-1.80%), Minneapolis (-1.76%), Phoenix (-1.55%), New York (-1.53%), Portland (-1.34%), San Francisco (-1.29%), Detroit (-1.25%), Miami (-1.18%), Seattle (-1.16%), and Cleveland (-1.05%).  The release this morning was largely in line with expectations and did not have much effect on our markets.  Today begins the FOMC’s first meeting of 2011 with their rate decision coming in tomorrow around 1:15pm CST.  We expect rates to be unchanged and QE2 to continue on as scheduled.  The president will deliver his State of the Union address tonight at 8pm CST.  He is expected to focus on U.S. competitiveness, spending, and jobs.  The Treasury just auctioned off $35bln 2-year notes and the issue stopped just about “on the screws” at .65%.  The auction had a nice bid to cover ratio of 3.47, which is right around the six-month moving average of 3.51.  Indirects took about 27% of the issuance.  We are now pushing through resistance at 120-21 and a close at this level or better would suggest the bulls are back in charge.  However, we don’t expect a large move to the upside (better rates) with the release of the FOMC statement tomorrow.  Dow is off 48 points, mortgage backs are rallying up 4s, and the 10yr is bouncing to better levels at 3.34%.
Joe Webb
VP Trading, Pipeline Management
PrimeLending, A Plains Capital Company
18111 Preston Rd, Ste 900
Dallas, TX 75252

© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.